4 ms·

at $90B/month it will take 89 months to unload.

by slaw 4y ago

cs702 4y ago
$90B/month = $1.1T/year in withdrawals of liquidity from the financial system. A trillion here and trillion there, and pretty soon we'll be talking about real money.
JumpCrisscross 4y ago
> $90B/month it will take 89 months to unload The optimal Fed balance sheet is estimated to be around $4tn [1]. A Fed with a ballooning balance sheet distorts financial markets. A Fed with no assets must do weird stuff to fight inflation, which distorts financial markets. (In a non-reserve case, a central bank with no reserves goes bust.) [1] https://advisors.vanguard.com/insights/article/thefedsplantoshrinkitsbalancesheetquickly https://advisors.vanguard.com/insights/article/thefedsplanto...
- slaw 4y ago
  Fed doesn't have to fight with inflation if it not creating one. So Fed's balance sheet could be as well $0
  - JumpCrisscross 4y ago
    > Fed doesn't have to fight with inflation if it not creating one. So Fed's balance sheet could be as well $0 Inflation has multiple causes. Fixed-money economies experienced inflation and deflation throughout antiquity.
    - slaw 4y ago
      Still, Fed is responsible for 90% of inflation.
      - deleted 4y ago
        [deleted]
      - JumpCrisscross 4y ago
        > Fed is responsible for 90% of inflation You're really jumping straight from proposing a zero-reserve central bank to theorizing the source of inflation?
- nine_zeros 4y ago
  Very interesting. So historically, it appears that the FED balance sheet reserves is 25% of GDP. I wonder what it is for other countries. Especially rapidly developing ones.
  - JumpCrisscross 4y ago
    > wonder what it is for other countries It varies pretty widely. I don't think there is good macroeconomic theory for its correct value, or even if there is a correct value. https://tradingeconomics.com/country-list/central-bank-assets-to-gdp-wb-data.html https://tradingeconomics.com/country-list/central-bank-asset...
    - nine_zeros 4y ago
      It doesn't seem 100% accurate (see: UK balance sheet). But the pattern is evident. The older/more developed an economy, the larger the central bank balance sheet. Which also seems like a correct line of thinking to me. In younger developing countries, more money is created by individuals/businesses via credit. Central banks don't need a large balance sheet to encourage more lending, banks already have a high demand for loans and have very high interest rates for credit. In older/developed countries, less money is created by individuals/businesses via credit. So central banks are forced to increase the size of their balance sheet which allows banks to offer more money for lending by reducing the interest rates because without low interest rates, there will be no credit growth.

at $90B/month it will take 89 months to unload.

by slaw 4y ago

at $90B/month it will take 89 months to unload.

$90B/month = $1.1T/year in withdrawals of liquidity from the financial system. A trillion here and trillion there, and pretty soon we'll be talking about real money.

JumpCrisscross 4y ago

> $90B/month it will take 89 months to unload The optimal Fed balance sheet is estimated to be around $4tn [1]. A Fed with a ballooning balance sheet distorts financial markets. A Fed with no assets must do weird stuff to fight inflation, which distorts financial markets. (In a non-reserve case, a central bank with no reserves goes bust.) [1] https://advisors.vanguard.com/insights/article/thefedsplantoshrinkitsbalancesheetquickly https://advisors.vanguard.com/insights/article/thefedsplanto...

slaw 4y ago
Fed doesn't have to fight with inflation if it not creating one. So Fed's balance sheet could be as well $0
- JumpCrisscross 4y ago
  > Fed doesn't have to fight with inflation if it not creating one. So Fed's balance sheet could be as well $0 Inflation has multiple causes. Fixed-money economies experienced inflation and deflation throughout antiquity.
  - slaw 4y ago
    Still, Fed is responsible for 90% of inflation.
    - deleted 4y ago
      [deleted]
    - JumpCrisscross 4y ago
      > Fed is responsible for 90% of inflation You're really jumping straight from proposing a zero-reserve central bank to theorizing the source of inflation?
nine_zeros 4y ago
Very interesting. So historically, it appears that the FED balance sheet reserves is 25% of GDP. I wonder what it is for other countries. Especially rapidly developing ones.
- JumpCrisscross 4y ago
  > wonder what it is for other countries It varies pretty widely. I don't think there is good macroeconomic theory for its correct value, or even if there is a correct value. https://tradingeconomics.com/country-list/central-bank-assets-to-gdp-wb-data.html https://tradingeconomics.com/country-list/central-bank-asset...
  - nine_zeros 4y ago
    It doesn't seem 100% accurate (see: UK balance sheet). But the pattern is evident. The older/more developed an economy, the larger the central bank balance sheet. Which also seems like a correct line of thinking to me. In younger developing countries, more money is created by individuals/businesses via credit. Central banks don't need a large balance sheet to encourage more lending, banks already have a high demand for loans and have very high interest rates for credit. In older/developed countries, less money is created by individuals/businesses via credit. So central banks are forced to increase the size of their balance sheet which allows banks to offer more money for lending by reducing the interest rates because without low interest rates, there will be no credit growth.