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Just doing rough back of the envelope math. Around 6T has been injected since the pandemic. It's taken 5 months to withdraw 140B. If they keep going at this

Just doing rough back of the envelope math. Around 6T has been injected since the pandemic. It's taken 5 months to withdraw 140B. If they keep going at this rate, constantly down without flattening or going up, it will take 214 months or 18 years to go back to 2020 levels. Ignoring that the 2020 levels themselves were hyper injected from 1T to 4T by the 2009 crisis.

JumpCrisscross 4y ago
> they keep going at this rate The run-down rate more than doubled in August [1]. Current estimates to optimal balance sheet are about 4 to 5 years [2]. [1] https://www.federalreserve.gov/newsevents/pressreleases/monetary20220504b.htm https://www.federalreserve.gov/newsevents/pressreleases/mone... [2] https://advisors.vanguard.com/insights/article/thefedsplantoshrinkitsbalancesheetquickly https://advisors.vanguard.com/insights/article/thefedsplanto...
- divbzero 4y ago
  The balance sheet shrunk from $8,874,620 million on August 3 to $8,822,401 million on September 7, a rate of about $50 billion per month or $600 billion per year. If continued, this rate of decrease would bring the balance sheet from $8.5 trillion down to $5.5 trillion by 2027, within range of the “optimal balance sheet” described in the Vanguard report.
Retric 4y ago
It’s not a linear drop, the removed 20B from mid April to mid June. Then another 120B in under 3 months.
- viscanti 4y ago
  Wasn't the 120B during a time when the FED was in a battle against inflation and making aggressive moves to raise rates? Are we to expect that it's the new normal for many years?
onlyrealcuzzo 4y ago
Money can get funnier, but it can never get less funny.
gz5 4y ago
The 140B you cite is mainly the Fed buying bonds from Treasury (indirectly)? Other than the other large buyers/sellers (e.g. other countries), what else materially creates up or down pressure on the rates (I know they are headed back up but they are still on the low side, historically)? Added (indirectly) to reflect comments below - tks.
- JumpCrisscross 4y ago
  > 140B you cite is mainly the Fed buying bonds from Treasury? The Fed isn't allowed to buy bonds from the Treasury [1]. The $140bn refers to bonds the Fed is letting mature without reinvesting the proceeds. That leads to fewer dollars chasing Treasuries, which reduces their price, which raises rates. [1] https://www.federalreserve.gov/faqs/money_12851.htm https://www.federalreserve.gov/faqs/money_12851.htm
  - nairboon 4y ago
    The Treasury auctions the bonds off to the primary dealers. The primary dealers sell the bonds to the Fed. At the end, the Fed has bought boatloads of Treasury bonds, but not from the Treasury!
  - egberts1 4y ago
    The Fed isn't allowed to buy bonds from the Treasury [1] … directly. You forgot the word “directly”. Feds can buy back in “open-market”.
riffic 4y ago
What was the 2009 crisis though? was that your run-of-the-mill recession (all business cycles have crests and valleys!) or was 2009 something different? Does anyone operate under the assumption another recession (maybe even two or three) will occur in the next 10-20 years with 100% certainty and like, prepare for those rainy days?
- xapata 4y ago
  > anyone Yes, it's almost certain that someone does. From your comment, it seems like you do.
asdajksah2123 4y ago
The economy has also grown drastically since then. The dollar has also become much stronger relative to nearly every other currency since then. It doesn't appear that the Fed needs to wind down much, if any, of that liquidity at all, since it seems it's been absorbed perfectly by the global economy. What we are seeing is the Fed deliberately causing the economy to contract below its capabilities in an attempt to slow down the growth of prices, which is NOT caused by monetary reasons, but since the Fed only has control over monetary levers that's what they're using. Classic case of everything looking like a nail if all you have is a hammer. If energy prices go back down to more "normal" levels, I suspect the Fed will be forced to inject more money into the system again, to rev up the US economy, and weaken the hyper strong dollar to protect people in developing countries from starving.
- soperj 4y ago
  > since it seems it's been absorbed perfectly by the global economy. So that's why we're getting 8-9% inflation rates? Because of the perfect absorption?
  - belltaco 4y ago
    Part of it is oil and gas supply going down because of war and since producing anything requires energy, prices are going to go up regardless of the money supply.
    - hutzlibu 4y ago
      Yeah but it does not look like the war is going away anytime soon. In case you missed it, russia partly mobilised today. So parent seems right refuting this claim: > since it seems it's been absorbed perfectly by the global economy.
    - soperj 4y ago
      Inflation was 8.5% before the war started, it's now at 8.3%. I don't think your premise holds.
    - 4y ago
cm2187 4y ago
and the ECB seems to be re-growing its balance sheet: https://tradingeconomics.com/euro-area/central-bank-balance-sheet https://tradingeconomics.com/euro-area/central-bank-balance-...
marcosdumay 4y ago
As a rule, the economy should react to the rate of change of the money supply, not to any absolute value. I do believe the US is in one of those moments where this isn't true, there is a mountain of money moving from a small niche into the main market, and the rate of this movement will determine what happens, not the change in total money supply. But even then, the size of the 2020 supply is irrelevant.
mancerayder 4y ago
A lot of that injection ends up in the Eurodollar system, a reference to US dollars outside of the control of the U.S. They estimate up to 70 percent of U.S. dollar volume is in Eurodollars. There's a fascinating PDF from 2020 from Rabobank research desk on the topic. I have it on my system but they took down the link to it. Money's never printed anyway, it's all accounting - it starts with treasuries, and then those become collateral on which the highly complicated financial system on the world chains one debt instrument to another.

JumpCrisscross 4y ago

> they keep going at this rate The run-down rate more than doubled in August [1]. Current estimates to optimal balance sheet are about 4 to 5 years [2]. [1] https://www.federalreserve.gov/newsevents/pressreleases/monetary20220504b.htm https://www.federalreserve.gov/newsevents/pressreleases/mone... [2] https://advisors.vanguard.com/insights/article/thefedsplantoshrinkitsbalancesheetquickly https://advisors.vanguard.com/insights/article/thefedsplanto...

divbzero 4y ago
The balance sheet shrunk from $8,874,620 million on August 3 to $8,822,401 million on September 7, a rate of about $50 billion per month or $600 billion per year. If continued, this rate of decrease would bring the balance sheet from $8.5 trillion down to $5.5 trillion by 2027, within range of the “optimal balance sheet” described in the Vanguard report.

Retric 4y ago

It’s not a linear drop, the removed 20B from mid April to mid June. Then another 120B in under 3 months.

viscanti 4y ago
Wasn't the 120B during a time when the FED was in a battle against inflation and making aggressive moves to raise rates? Are we to expect that it's the new normal for many years?

onlyrealcuzzo 4y ago

Money can get funnier, but it can never get less funny.

gz5 4y ago

The 140B you cite is mainly the Fed buying bonds from Treasury (indirectly)? Other than the other large buyers/sellers (e.g. other countries), what else materially creates up or down pressure on the rates (I know they are headed back up but they are still on the low side, historically)? Added (indirectly) to reflect comments below - tks.

JumpCrisscross 4y ago
> 140B you cite is mainly the Fed buying bonds from Treasury? The Fed isn't allowed to buy bonds from the Treasury [1]. The $140bn refers to bonds the Fed is letting mature without reinvesting the proceeds. That leads to fewer dollars chasing Treasuries, which reduces their price, which raises rates. [1] https://www.federalreserve.gov/faqs/money_12851.htm https://www.federalreserve.gov/faqs/money_12851.htm
- nairboon 4y ago
  The Treasury auctions the bonds off to the primary dealers. The primary dealers sell the bonds to the Fed. At the end, the Fed has bought boatloads of Treasury bonds, but not from the Treasury!
- egberts1 4y ago
  The Fed isn't allowed to buy bonds from the Treasury [1] … directly. You forgot the word “directly”. Feds can buy back in “open-market”.

riffic 4y ago

What was the 2009 crisis though? was that your run-of-the-mill recession (all business cycles have crests and valleys!) or was 2009 something different? Does anyone operate under the assumption another recession (maybe even two or three) will occur in the next 10-20 years with 100% certainty and like, prepare for those rainy days?

xapata 4y ago
> anyone Yes, it's almost certain that someone does. From your comment, it seems like you do.

asdajksah2123 4y ago

The economy has also grown drastically since then. The dollar has also become much stronger relative to nearly every other currency since then. It doesn't appear that the Fed needs to wind down much, if any, of that liquidity at all, since it seems it's been absorbed perfectly by the global economy. What we are seeing is the Fed deliberately causing the economy to contract below its capabilities in an attempt to slow down the growth of prices, which is NOT caused by monetary reasons, but since the Fed only has control over monetary levers that's what they're using. Classic case of everything looking like a nail if all you have is a hammer. If energy prices go back down to more "normal" levels, I suspect the Fed will be forced to inject more money into the system again, to rev up the US economy, and weaken the hyper strong dollar to protect people in developing countries from starving.

soperj 4y ago
> since it seems it's been absorbed perfectly by the global economy. So that's why we're getting 8-9% inflation rates? Because of the perfect absorption?
- belltaco 4y ago
  Part of it is oil and gas supply going down because of war and since producing anything requires energy, prices are going to go up regardless of the money supply.
  - hutzlibu 4y ago
    Yeah but it does not look like the war is going away anytime soon. In case you missed it, russia partly mobilised today. So parent seems right refuting this claim: > since it seems it's been absorbed perfectly by the global economy.
  - soperj 4y ago
    Inflation was 8.5% before the war started, it's now at 8.3%. I don't think your premise holds.
  - 4y ago

cm2187 4y ago

and the ECB seems to be re-growing its balance sheet: https://tradingeconomics.com/euro-area/central-bank-balance-sheet https://tradingeconomics.com/euro-area/central-bank-balance-...

marcosdumay 4y ago

As a rule, the economy should react to the rate of change of the money supply, not to any absolute value. I do believe the US is in one of those moments where this isn't true, there is a mountain of money moving from a small niche into the main market, and the rate of this movement will determine what happens, not the change in total money supply. But even then, the size of the 2020 supply is irrelevant.

mancerayder 4y ago

A lot of that injection ends up in the Eurodollar system, a reference to US dollars outside of the control of the U.S. They estimate up to 70 percent of U.S. dollar volume is in Eurodollars. There's a fascinating PDF from 2020 from Rabobank research desk on the topic. I have it on my system but they took down the link to it. Money's never printed anyway, it's all accounting - it starts with treasuries, and then those become collateral on which the highly complicated financial system on the world chains one debt instrument to another.