The Fed Balance Sheet Reduction is a Distraction From the REAL Crisis
By: Graham Summers
GoldSeek.com
Thursday, 21 September 2017
Everyone is making a big deal about the Fed’s so-called “balance sheet reduction” which starts next month.
Let’s assess some facts.
First of all, the Fed plans on shrinking its balance sheet by $10-$30 billion per month. The Fed balance sheet is currently $4.5 trillion. So at this pace of unwinding it would take somewhere between 13 and 33 years for the Fed to normalize its balance sheet back to pre-2008 levels.
So the notion that this is significant is off base. It borders on irrelevant.
Second of all, the only reason the Fed is even discussing a balance sheet reduction is because stocks are soaring. The second that stocks begin to correct, multiple Fed officials will appear on TV talking about how it’s time to “slow the pace” or even “halt” its balance sheet reduction.
Let’s get real here.
The reality is that the stock market is the ONLY thing the Fed can point to as a success. The economy from 2008 to 2016 was in the weakest recovery in 80+ years. Indeed, the Fed has all but given up on the farce that it cares about the economy: yesterday, Fed Chair Janet Yellen herself admitted publicly yesterday that the Fed takes account of “asset prices” when it comes to rate hikes.
In Fed-speak, asset prices=stocks. And that’s the #1 focus for the Fed when it comes to monetary policy.
So what does this mean?
The Fed is going to engage in some symbolic shrinking of its balance sheet, but the second things get messy for stocks, the Fed will start walking back this policy.
And THAT opens the door to the REAL crisis.
A crisis of inflation.
The $USD is imploding. It bounced a bit courtesy of the Fed announcement yesterday, but it’s in SERIOUS trouble having taken out critical support.
The Rest…HERE
