5 ms·
Speaking of economic fluid, here's a fun fact: Value of assets on the balance sheet of the Federal Reserve in 2007: 0.9 trillion Value of assets on the balanc
by Culonavirus 3y ago
Speaking of economic fluid, here's a fun fact:
Value of assets on the balance sheet of the Federal Reserve in 2007: 0.9 trillion
Value of assets on the balance sheet of the Federal Reserve in 2022: 9 trillion
- gambiting 3y agoI don't really understand what this implies?
- nologic01 3y agoRefers to excess liquidity (which may have played a role in inflation but may also have saved the day from the deepest depression) The anti-liquidists (also gold bugs or digital gold bugs) never came to terms with the fact that the human economy - like the human body - is mostly made out of water. There is a goldilocks hydration level but its not a simple thing to identify as there are countless other complex things going on.
- atomicnumber3 3y agoIt's a combination of the federal reserve both having bought lots of assets and also made a lot of money on the assets it's holding. It's a bit weird. The federal reserve made money on the assets it held in the 2008 crisis. (Buy low, sell high!)
- eru 3y agoThough more properly, you would need to look at the risk adjusted returns, instead of just the absolute returns.
- atomicnumber3 3y agoFurther weird because the federal reserve issues the currency in which the assets are marketed... so was there really any risk, in the usual sense?
- eru 3y agoYes, there was a risk. You can say that borrowing from the markets is riskless for the Fed, because it can always pay back with the printing press. But lending to the markets is still risky: because market participants don't have a printing press to help fall back on. (In this case, the Fed often also bought some assets and later sold them; that's financially equivalent enough to lending that it doesn't make a difference here. Especially if the assets you are buying and selling are bonds.)
- dkjaudyeqooe 3y agoSome people reflexively blame everything bad that happens in the economy on the Fed's QE, usually because they're outraged by it though they have no reasoned justification for feeling that way. It's like a conspiracy theory, except the "conspiracy" part is actually true (the Fed was exactly trying to create inflation), but the consequences are fanciful and legion.
- eru 3y agoWell, I blame a lot of bad things that happened, specifically the slow recovery from the 2008 recession, on the Fed not doing enough QE! (Seemingly) paradoxically, the big Fed balance sheet is also a consequence of not doing enough QE fast enough. Of course, the Fed isn't responsible for everything. For example, the Fed has nothing to do with the Jones Act.
- eru 3y agoInterest on excess reserves explains much of that change. In the olden days of 2007, banks would only hold as many reserves at the Fed as they legally needed. They would instead invest any extra (or make their deposits less attractive, so that they have fewer excess reserves). In 2008 the Fed started paying interest on reserves above the legally minimum (so called excess reserves). Excess reserves parked at the Fed don't contribute to the economy, but are still counted in the Fed balance sheet. You can see on https://fred.stlouisfed.org/graph/?g=15mr6 https://fred.stlouisfed.org/graph/?g=15mr6 how the level of reserves at the Fed shot from about 0.050 trillion USD in 2007 to about 3 trillion USD today.