Couple of quick points to why the fed balance sheet does not matter.
- US dollars do not come from the federal reserve. They come from the private commercial banks that you get your loans from. Nobody is borrowing money at 0%. Even the US government is currently paying 1.7% on 10 year bonds.
- The size of the top 4 commercial bank balance sheets are as follows: JP Morgan 3 trillion BAC 2.2 trillion WFC 1.8 trillion Citibank 1.6 trillion = 8.6 trillion.Fed balance sheet = 7.8 trillion
When the commercial banks expand their balance sheets, they are buying ‘income producing assets’ that is paychecks from people who work and income from business. This is the exact same process as QE.
When these commercial banks run into the enivtable trouble of repayment due to the magic of compound interest, they dump these assets at 100 cents to the dollar to the federal reserve. One way the Fed does this is by getting the federal government to guarantee a fund ie maiden lane and it magically transmutes worthless assets into US government debt equivalents.
That is ALL the fed is. They are a DUMPING ground for bad assets by Wallstreet. The federal reserve *reacts* to the private banking system.
3) The Fed is staffed by clueless professors and fortune tellers who call themselves economists. Modern economists fulfill 2 roles. One is to act as apologists for shylocking and the second is to ‘fortune tell’ or what they call forecasting, this is entirely based on gambling theories and has nothing to do with the fact of knowing.
4) The federal government sets the price level in the economy when it spends money on objectives. These objectives are what determine *how the economy* will look like. Keynesian deficit spending *inflates* the nominal incomes of certain groups while debasing real wages. This increase in prices allows the banking system to appear solvent, since they are able to expand loans at higher prices against the same fixed things, thereby increasing their interest income. So a 200k house is now 1million etc.
The spending, taxing and regulating activities of the federal government are what effect the economy the most, NOT the federal reserve. For the past 50 years, the federal government transferred its constituional power to set policy to Wallstreet via British free market philosophies. The government instead of setting policy with the common good in mind, sets policy with what the ‘free market’ wants.
The problem with the free market is its entirely based on human self-interest which is *not fixed*, it changes and it can change daily. Your self interest today might be completely different from what you want tomorrow. This makes it entirely irrational, hence the financial markets pricing the same asset at a different value every minute despite *no objective changes*.
So when the government bases its policies on the free market you get this chaotic mess of an economy that we are in.