At the last FOMC press conference, Fed Chair Jerome Powell noted QT, also known as balance sheet reduction, was coming to an end. Here’s where we stand.
June 2022, the Fed began a balance sheet runoff schedule to let up to $95 billion securities ($60B Treasuries and $35B MBS) mature without reinvesting, thus gradually reducing its size in QT.
QT has been ongoing for 22 months. Allowing a month for settlement and noting that March isn’t over, let’s call it 20 months.
Runoff Math
- MBS Math: 20 months * $35 billion per month = $700 billion. The Fed lightened MBS by $337 billion, not even half the max allowed.
- Treasury Math: 20 months * $60 billion per month = $1,200 billion. The fed lightened US Treasuries by 1,151 billion, pretty much on schedule.
The Fed’s balance sheet is now a massive $7.5 trillion. Is this a success?
The New Normal Balance Sheet
Please recall that when the balance sheet ballooned to $2 trillion, former Fed chair Ben Bernanke said it would be no problem winding if back down to normal
It seems that normal is now $7 trillion up from Bernanke’s $1 trillion with mortgage backed securities over $2 trillion up from $0.
Cumulative Federal Deficit
The Peter G. Peterson foundation has some sobering thoughts on the Current Federal Deficit.
For the first five months of FY24, total outlays were $2.7 trillion, $227 billion higher than the same period in the previous year. Adjusting for timing shifts, spending was $236 billion above the same period last year. Two areas of the budget have experienced rapid increases so far this year. Net interest has grown by $116 billion (49 percent) relative to the first five months of last fiscal year, mostly due to higher interest rates; deposit insurance has risen by $61 billion because of actions related to bank failures in 2023. In addition, spending on Social Security, Medicare, and defense increased significantly in the first five months of the fiscal year. Partially offsetting those increases in outlays was a $39 billion decrease in spending by the Pension Benefit Guaranty Corporation (PBGC) because certain one-time payments were made to pension plans in FY23 but not FY24.
Debt Held by the Public
- Debt Held by the Public at the end of February 2024: $27.3 trillion
- Debt Held by the Public at the end of February 2023: $24.5 trillion
In the past year, debt held by the public has gone up by $2.8 trillion.
Year-over-year debt always goes up more than the deficit because the CBO does not count Social Security deficits until they are realized.
Republican Humiliation Enshrined in Huge 1,000-Page $1.2 Trillion Bill
On March 21, I noted Republican Humiliation Enshrined in Huge 1,000-Page $1.2 Trillion Bill
The $1.2 Trillion that is on the table is for six components, not the entire budget.
On December 22, 2023 Biden signs $886 Billion US Defense Policy Bill Into Law. The new bill added another $26.8 billion.
At a minimum, we are at $2.086 trillion. And that is not counting Biden’s request for another $100 billion or so for Ukraine and Israel.
In February, the Congressional Budget Office released its annual Budget and Economic Outlook and projected that the nation will run a $1.6 trillion deficit in FY2024.
That estimate did not count an extra $26.8 billion for defense spending, anything for Ukraine or Israel, nor the Social Security deficit.
The CBO forecasts no recession (it never does) and it forecasts inflation will drop.
Expect debt to go up at least another $2 trillion in the next year. If recession hits, that could easily double or more for FY2025.
Mission Accomplished?
Meanwhile, genuine economic nut cases are calling for more public housing.
For discussion, please see the proposed New Green Deal for Public Housing
There is no incentive to pare down its balance sheet when the government pays interest on Fed Treasuries. The Fed claims to return Treasury yields back to government sources. But, without oversight, who funds the half million dollar salaries of Fed regional presidents, the $150K yearly pay of researchers. And DEI programs like Kaskari’s Opportunity & Inclusive Growth Institute. The last commercial bank that went long on Treasuries, at historically low yields, needed a bailout. The same reason for the Fed’s largest ever operating loss in 2023. And their recent announcement to forgo remittances to the Treasury. Essentially a government bailout. Government yields come in, and nothing goes out. A monetary roach motel.
so is powells next move to start buying MBS and bringing down mortgage rates??
now I understand golds move
“Please recall that when the balance sheet ballooned to $2 trillion, former Fed chair Ben Bernanke said it would be no problem winding if back down to normal.”
Well, Powell did get blind sided by Dr. Birx.
Very logical and very simple to understand example, for these financially inept fools to perhaps take a quick read to maybe, just maybe, understand basic logic and math.
Small town has 5 families. 1 of the 5 has a garden, so 4 do not. As time passes, 4 families start starving, while one is doing ok.
Rather than take the initiative to learn and plant their own gardens, they start stealing from the only garden that exist in town.
As time passes they realize that they won’t have enough to feed everyone, so they make the decision to rid the town of the largest family, because they eat the most, and with all those kids. Now only 4 families exist.
As time passes they need to cull the town further and further for survival. The Elders get together and decide the next 2 largest families must go as well. So that leaves the town with only 2 families, but now only 4 elders are left.
They quickly learn a few things before the 4 of them huddle up together and starve to death.
The Town dies with them and that’s that!
Learned Behavior:
1. Everyone must work together as a team, in order to survive and flourish as a society.
2. While elderly are important, wisdom and intelligence is by no means a guarantee. Add on the deteriorating physical conditions, and they can’t take care of the Gardens, and then add on the deteriorating mental capacity, and they no longer know how anyway, as they all 4 begin to fade away, and eventually die.
3. Theft leads to only temporary gains for the thief, and is devastating to the owners. A model of certain decay!
4. Money meant nothing, as you can print a whole bunch of it, but you can’t eat it, or buy unavailable food with it. It’s worthless in other words.
5. Maybe we should start paying attention to the importance of taking care of Ourselves First, before we help others, and cause more harm to everyone involved. Perhaps rely less on the elders to continue to lead, and maybe play more of a support role via wisdom. Give the mid-level, currently running the Country in essence, but not allowed to make the rules, more of a say. Realize the importance of educating our youth with transferable skills used to survive, instead of how to take advantage of others to do so.
Food for thought, but a lot less expensive and enough to go around for everyone, as we all work together for one common goal, and not Individualism superiority or ruling by dictate!!!
forgot rule #1 – thieves get shot – therefore reduction begins immediately without starvation
when rest realize they can’t steal from smart family they move out to find dumber ones
I think the U.S. is going to collapse like hyperinflation in Germany and it’s right around the corner. Nike, Lululemon performance declines, Bitcoin rises, hedge funds dump shares of discretionary consumer goods in the post-Christmas period, marking their “biggest net sale since September,” according to Goldman Sachs,
According to Verity, a corporate insider stock trading research firm, the ratio of corporate insiders to buying and selling in the first quarter of this year was the highest since the first quarter of 2021. The Financial Times quoted analysts as saying on the 25th that the recent rise in technology stocks triggered by the rise of artificial intelligence (AI) could be seen as a sign that it will soon disappear. Charles Elson, head of the University of Delaware’s Corporate Governance Center, said, “If you sold stocks because you thought the stock market had reached its peak, it would be a very clear signal to others.”
Social Security expenditures were
indeed higher for FY 2024 YTD. But I went and looked at the monthly treasury report for a deeper dive and it also shows that Social Security revenues (on budget/off budget) were also higher. So SS had virtually no impact on year over year increases to the federal deficit. SS is more or less running at break even. For deficit hawks, the problem with SS is that it no longer produces structural surpluses adding huge free dollars to the treasury (and off setting public debt issuance). But this is a well understood and known demographic issue. There is no surprise that SS produces no surpluses like the good old days. As it stands, the primary incremental deficit drivers are interest on public debt, defense, and medicare/medicaid. Of course we have a structural deficit as a starting point. But SS is actually a good program from a federal accounting perspective: it has a source of revenue (payroll tax); the payroll tax is indexed to inflation meaning the cap goes up. A large chunk of SS recipients pay federal tax on 85% of their SS income. If the rest of the federal government taxed liked SS, we would not be in such a fiscal mess. Just sayin!
Remember when ten months ago Yellen wrote a letter to Congress telling them that they needed to hurry up and raise the Debt Limit so she and borrow the CASH (my term) needed to pay Medicare, Social Security and interest on the Debt.
Don’t get lost in the weeds (debits and credits). Follow the cash. Social Security and
Medicare ran out of income (cash) more than ten years ago. Social Security’s
Reserves (Trust Fund $) was spent decades ago, so we have to barrow cash to
make monthly payments.
This problem is accelerating. More Boomers are retiring every day the they won’t start dying off in large numbers for five to ten years. It is so bad Trump doesn’t even
dare to talk about it.
SS has not run out of cash. That’s just nonsense. So let’s follow the cash as you say. SS has a revenue source. It’s called the payroll tax. In flows are constant, reliable, dependable and consistent. And the amount collected continues to increase for reasons that are agin obvious if you follow the cash. We all know that historical SS surplus dollars were spent and that the trust fund is more or less fiction. But that hardly translates to “running out of cash” as you indicate. SS has structural issues which are actually easy to fix. The current accumulated public debt is largely unrelated to SS. It would actually be higher because SS surpluses, about 35 years’ worth give or take, off set the amount of public debt that was issued. Yes, let’s follow the cash. SS has not run out of money and putting it on a long term path to inflows being equal to outflows is easy to do.
Great points! This chart shows net interest payments will eclipse SS payments around 2050.
link to pgpf.org
Smoke and mirrors. We get the mirrors, Fed smokes joints.
We need to know what the new minimum liquidity requirements are for Banks…Basel III…..reserves are forced into the banks.
I remember Bernanke pumped the Fed’s balance sheet from $800 million to $4 Trillion. I don’t think $7 trillion is the new normal. It’ll probably go to $30trillion in the next market meltdown. Got gold?
The Fed’s balance sheet is on a slightly bumpy road to infinity.
“The Fed’s balance sheet is now a massive $7.5 trillion. Is this a success?”
Sure, if the goal is to show just how fiscally irresponsible the Fed has become. Their current total asset sheet is over 10X what it was at the end of 2002. See this graph for a visual representation: link to fred.stlouisfed.org
link to dailymail.co.uk
Cash out now if you have property in Pensacola. Property inflation and homelessness are coming to a city near you.
I just saw a streaming series where Pensacola is hooker capital and trailer park capital. Starring bruce willis, megan fox. The FLA propaganda has to stop.
“Get in there and sell, sell, sell….” (Randolph Duke)
Hyper-inflationary debt “default” is the only way this level of debt is “manageable”.
Yeah , I guess the Fed’s balance is more important than the hundreds of innocent people killed or mingled for life as a consequence of, no fckn doubt ,covert, yet nevertheless, direct support by your top criminal gang called the fckn CIA ….
Finally Wolf is getting it.
Wolf Richter had a piece last week that did a good job explaining the likely point at which they will stop is about $5.5 trillion, which includes the cure nt ~$2.4 trillion in cash plus an estimate of what ample reserves are. Obviously much higher than pre-GFC, but also, the new regulations require banks to hold far more reserves than in the past, so that is going to drive things. to me the question is will they even get close? my guess is not much below $7 trillion
Ample reserves is a historically unprecedented policy with unknown long-term consequences.
Separating QT from interest rates is also historically unprecedented. By decoupling quantity of credit from interest rates, the Fed’s current policy of separating slow-QT from Fed Funds rate has removed the inflation-fighting teeth from interest rates. At least at the 5% level.
It’s more likely to be constrained credit (rather than actual interest rates) that halts inflation, but no one understands this. The logic is really simple though – changing rates at modest levels (0-7%) just redirects the flow of money in the economy from debtors to creditors, without reducing total demand all that much. Absent adequate competition, most companies are just charging higher prices to make up for interest costs…. Only by constraining credit overall can you slow demand to stop inflation. But that requires pain, and the Fed is not prepared to inflict pain.
By slowing QT in order to remain in an “ample reserves regime” we are not doing enough to tighten financial conditions to stop inflation.
Just on oct 18, 2023, Bill Dudley proclaimed 8%-10% of GDP would be appropriate. Don’t you luv e-CON? they say it’s a numbers game!
Well I guess deflation is out and we won’t be going back to those bad old Sears and Roebuck days in 1903 when a 20lb box of crackers cost .99 cents or 2 dollars and 95 cents bought a box of 100 soap bars. .
Yes but massive 55” TVs can be bought for $200 and non-fancy basic laptops are available for $150.
There are plenty of things we use that have experienced Deflation and can be done for a tiny fraction of the cost and are available in the palm of your hand or can be summoned by your phone.
The concept that deflation can’t or doesn’t happen is myopic, when we consider how powerful the Computers we all carry with us daily have become.
David, In terms of scale of production, yes computers, went down from the 1990’s. The thing is that my “living” costs have gone up dramatically: insurance, food, gas, utilities, health bills, repair costs, etc.
I can’t eat a computer. Those expenses (just some) that I listed are my living expenses. Big difference.
Well, Dave, technically, a deflation to 1903 purchasing power means your preferred TVs can be bought at 75 to 100 dollars, but apparently would require the absence of a Fed central bank needed for the vicissitudes of empire, the FBI, no Income Tax, Department of Education, ATF, and a host of other agencies that did not exist in fact nor mentioned in the Constitution in 1902, as well as the Panama Canal Zone stolen fair and square, like Hawaii. However, there was a railroad across Panama in 1850, when the great white fleet forced Japan to open her borders for “free trade” resulting in a new Japanese navy defeating the Russians in 1905, and later on attacking Pearl Harbor in 1942 after we briefly invaded Russia in 1919 in support of the white Russians after the Germans sent Lenin to Moscow, Dave. Have a nice day while watching Barbie. . .
Going forward, why would anyone procreate children in the United States? The kids of tomorrow will be living this soon-to-be third-world, debt ridden, non-industrial (meaning no good paying jobs) HELLHOLE of a country in the coming years.
I would direct that question more to places like the Gaza strip where they reproduce like rabbits with absolutely no hope for a safe prosperous existence. I don’t understand people like that anywhere in the world. The real problem here is that were are not procreating enough. China, Japan and Europe also have the same problem.
“People like that” are people like You.
They’re Humans and their goals are to survive and live and be happy and potentially make their lives better and help their children do the same.
Not to play Geopolitics or condemn others who are just trying to do the same.
This is the Human Condition, not hard to understand.
When I was married I held off on having children until I could afford them common sense. So when people have children without means of support it’s basically child abuse bringing them into a situation like that
HMK: Touchee— u nailed it!
I don’t think that’s the fundamental reason why the birth rate is dropping. It has more to do with green brainwashing and selfishness. Kids are a blessing, you’ll always find ways to support them, wish I’d had more.
No David, the people in sheet hole countries are not trying to be responsible and prosperous. If they were, they would not procreate, because they can barely afford to live decently THEMSELVES, much less have children. At least in the U.S. more than 1/2 of us wait to have jobs & get married before we have children. The vast majority of our irresponsibles who have children yet have to rely on welfare, vote D. We must save our country this Nov and there’s only one way.
it`s because Israel stole their land and put them under siege in a closed prison..
Yes. Please leave the US and it will be better for you.
The rest of us will get along great without ya!
It will be a happier and more enjoyable place.
Cheers!
Dave
David: That’s just weird…HMK states obvious, common sense, and hard truth facts, and you tell him to leave the country. I can guess your voting predilection.
The US is still the best country in the world to live in if you want to get ahead. If you don’t like it here, then I suggest you move to a country that you think is better.
HELLHOLE outsourcing wars to neocons non stop b/c they can’t think.
Trump is MUCH MORE against funding wars than Biden. FACT.
Probably true, however the MIC, CIA, et. al. will have their way, it’s the American (corporate) way!!
Tis much better too invest then save. Saving money stifles the economy, it produces nothing in a bank account. Investment promotes progressivism, RDT&E are built on this principle. The government needs to borrow in order to invest in our future. We’ve proven in the last year the economy was operating below its potential. Bidenomics has been very very good to me. If you’re not invested in the stock market, you’re losing wealth. By keeping your money in your mattress or in a bank account you are not investing in the United States in moving forward as the greatest economy ever. The federal government knows what’s best for all Peoples. This is why we need so many “new arrivals”. They are out there spending their hard earned money to keep this country going.
Get out there and spend. Promote the Service economy. Support the tax and spend methodology. Spread your wealth. Embrace Keynesian economics.
Bidenomics sucks, FJB.
Many people here don’t want to save or invest. They just want to whine, complain and spread cult conspiracy garbage. I miss the IGNORE button.
LOL…Apparently, I need to do better at sarcasm. If you’ve ever read anything I have ever written here, you would no better then to believe this. BUT. it’s good to see so many ppl despise Leftist eonomics.
It won’t end. They will ‘print’ more even faster. They will call it something else, or not call it at all. It won’t matter as literacy and numeracy are fast disappearing thanks to our schools. Already most all statistic are unaccountable.
Gee, no idea why the inflation is so sticky and the housing and stock bubbles persist. Nothing to see from this data. Hmmm, i’m stumped. Maybe JPow should announce ala GW Bush “Mission Accomplished” from the deck of the USS Abraham Lincoln — ironic it would be on a ship named for the Honest president when both statements would be so wrong.
Good and important article, thanks, Mish. But where/when did Powell state QT was coming to an end? I missed that. Could someone provide a direct quote or two?
See wolfstreet.com for coverage of this. They don’t formally announce an end, but have been talking about slowing the rate (leading to an eventual end in maybe another year-ish?) to give finance system time to adjust in order to reduce collateral damage.