QE…The Gift That Just Kept Giving…Is Now Taking

Sharing is Caring!

by Chris Hamilton 
I know the Federal Reserve doesn’t effectively create money or directly monetize.  I know this because then Fed chief, Ben Bernanke, told us so (HERE).  But still, something has me wondering about that exchange, now almost a decade ago.  The simplest of math.
The plan to utilize quantitative easing and avoid direct monetization went like this.  The Fed would buy the Treasury debt and Mortgage Backed Securities (remove assets from the market) from the big banks.  However, the Fed would force those banks to deposit the new money at the Federal Reserve.  This would avoid the trillions of newly created dollars from going in search of the remaining assets (particularly levered from somewhere between 5x’s to 10x’s…turning a trillion into five to 10 trillion…or far more).
The chart below shows the Federal Reserve balance sheet (red line) and the quantity of those newly created dollars that the recipients of those dollars, the banks, deposited at the Federal Reserve (blue line).  But the green line is the quantity of newly created dollars that have “leaked” out…also known as “monetized”.

What is so interesting is the interplay of QE and excess reserves…resulting in the peak QE impact taking effect long after QE was tapered and had ceased.  The trillions in assets remaining with the Fed, but the new cash went looking.
 

The impact of $800+ billion of pure monetization from late 2014 through year end 2016 was spectacular.  In the hands of the largest banks (multiplied by “conservative” leverage somewhere between 5 to 10x’s) likely amounting to trillions in new cash looking for assets.  A “bull market” beyond belief should not have been surprising.
However, that change since 2017 should begin to effect the market in 2018.  The change in flow from the declining Federal Reserve balance sheet coupled with fast rising interest payments on Excess Reserves (billions for the banks for not taking any risk, not making any loans to keep the cash locked away) should help to hold the Excess Reserves from declining any faster than the Fed’s balance sheet reduction.

This cessation of “leakage” of new money coupled with extreme lows in savings, extreme valuations in asset values vis-à-vis disposable incomes (detailed HERE), and decelerating deficits with rising interest rates (detailed HERE) does not likely add up to a positive outlook.

READ  Obama lifted ban on gain of function research 11 days prior to Trump taking office. Its a Plandemic period.
READ  DO TELL: Grand theft: More say Biden taking credit for Trump achievements.
1,470 views

2 thoughts on “QE…The Gift That Just Kept Giving…Is Now Taking

  1. Excellent and interesting work.
    Federal Reserve owner banks are cashing in now. Thank you American taxpayers – what suckers.

    • G?ogle offers the people 97 dollars per-hour to do easy jobs onnet .. Do work for few peroid of time in a day and spend more time with your loved ones … Any person can join this online service…last Monday I purchased a great new Subaru Impreza just after earning $19520 last four weeks .it is absolutely the extraordinary approach however you wont forgive yourself if you don’t test this.!zf10g:??? http://GoogleNewNetJobsVideoUpdateWorkFromHome/more/cash ??p???c?j??e?x?i???i??w???p?r??p??h??b?i?c?o???i??q?i??j?r??e??k?i?f:::::!if082v:wky

Leave a Comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.