In the aftermath of the 2008 financial crisis, the Fed managed to unload a mere $800B (balance sheet went from $4.5T to $3.7T) in the longest bull run in history. Now that it's an order of magnitude bigger, you can draw the logical conclusion yourself.
It'll take a while to unwind, no doubt about that.
The Fed currently holds ~$5.8 trillion, but it's long term holdings are about ~$1 trillion in current dollars, so it's holding an addition ~$4.8 trillion above what it normally has since the early 2000s.
In October of 2014, it held ~$3.7 trillion, or ~$2.7 trillion above what it normally holds, so the recent increase to $4.8 trillion above baseline isn't quite an order of (base 2) magnitude increase.
Having said all that, the net worth of households and non-profits in the US is about ~$118 trillion.
Love it when people cite FRED. Top quality data source and one of the best litmus tests for the credibility of someone's claims on economic matters. This guy knows what he's talking bout. Good job!
Ok, thank you. I found a page as well on the "so what" of that. http://www.crfb.org/blogs/cbo-consequences-growing-national-... . It would be interesting to pontificate about how much USD the Fed can print before it does have these bad impacts. Currently it seems we're in a deflationary period bc the velocity of money has gone down so much and people are holding cash. Will be interesting to see how much inflation there is down the line after the $500B extra they're printing now.
The Weimar Republic had debt obligations that it couldn't repay and so they printed money. Meanwhile the balance sheet of the Fed is just that. A balance sheet. The only way they can create inflation is by making the balance sheet bigger. As long as inflation is below the target they can just keep increasing the balance sheet. There is no obligation to decrease the balance sheet unless inflation is above the target.
Why are they even doing this in the first place? The Fed buys assets during deflation and sells assets during inflation. Buying a cheap asset (e.g. $50 for a share) with money created from thin air increases the money supply and over the long run increases inflation. Inflation causes the prices of cheap assets to rise above the original value to $100 for a share. The situation is out of control! What can the fed do? It can sell assets in exchange for $100. In other words. The fed never runs into a situation which it cannot undo.
The problem, you see, is that the money issued by the Fed is used all over the world through the magic of repo, while CPI is measured within the United States only. Ever heard of the shadow banking system? Eurodollars?
Can I ask for a journal or study source/citation for this?