The US Federal Reserve Balance Sheet

A picture paints a thousand words. The most highly regarded and respected financial institution in the world is arguably is the United States central bank, the US Federal Reserve, affectionately known as The Fed. It’s current chairman is Jerome Powell, the former chair persons, all have vast intellectual capacity, famous name such as Janet Yellan, Ben Bernanke, Alan Greenspan, Paul Volcker people of incredible calibre and wisdom. Since 2008 the world has had huge financial turmoil, from the 2008 global financial crisis to the now terrible impact of Covid19 on the global economy. What is very interesting to observe is shear scale of the financial intervention into the markets that The Fed has undertaken, effectively injecting huge quantities of cash (liquidity) into the market, to buy assets off commercial banks, to keep markets functioning. A good way to see that scale of intervention is to look at the movement in size of The Fed’s balance sheet. From 2008, just before the financial crisis hit, the assets on the US Federal Reserve were $914,632 Million = $914 Billion = $0.914 Trillion dollars. Then the credit crisis hits and then the Fed intervened into the market by buying mortgage securities and also buying US Treasuries (US Government bonds = US Government Debt) what we know as Quantitative Easing (QE). Then the balance sheet jumped to $2,871,301 Million = £2,871 Billion = $2.871 Trillion dollars, and then by March this year that grown to $4,241,507 Million = $4,241 Billion = $4.241 Trillion dollars just before Covid19 hits, and then the acceleration in the size of the balance sheet, rockets to now where it stands at $7,056,129 Million = $7,056 Billion = $7.056 Trillion. Its scale can not be under-estimated, the fire power of the US Federal Reserve is vast. However what we are seeing is a huge scale market intervention from the central bank to ensure market stability by pumping massive quantities of cash into the system by asset purchases, and then question becomes, are asset prices rising because of the level of national debt, globally, as we are seeing soaring equity prices and perhaps inflation is on the horizon that will wipe out the value of our cash savings.

Leave a Reply

Your email address will not be published. Required fields are marked *