Leave It to GS to Reassure the Unwashed Masses: Fed Balance Sheet Could Swell to $4 Trillion
First of all, I'd be curious to know if anyone can actually confirm the $2 trillion number. GAO? Independent team of auditors? Exceptionally talented money-counting hamsters who live in the Board of Governors bunker? Anyone?
Goldman’s Hatzius Says Fed Balance Sheet Could Hit $4 Trillion (via Bloomberg):
Jan Hatzius, chief U.S. economist at Goldman Sachs Group Inc., said the Federal Reserve could double the size of the central bank’s balance sheet again if needed to support economic growth.This is absolutely hilarious. Bernanke gets his second term and all the sudden the Fed is interested in the "take it nice and slow, baby" method.
A rise in the balance sheet to $4 trillion is a “possibility,” Hatzius said in an interview on Bloomberg Radio in New York. “It is going to depend on not just what inflation does, but also on whether the economy does move back to a slower growth pace.”
Fed Chairman Ben S. Bernanke has cut the main U.S. interest rate to almost zero and more than doubled total assets on the central bank’s balance sheet to unclog credit markets and help meet banks’ demand for cash. Fed officials have started to phase out such programs, deciding this month to let a $300 billion program to purchase long-term Treasuries expire in October.
The size of the Federal Reserve’s balance sheet has increased to $2.02 trillion as the central bank purchased assets aimed at lowering interest rates, as of the week ended Aug. 12.
The Fed must now guide the world’s largest economy back to growth and reduce unemployment approaching 10 percent while shrinking the balance sheet to prevent a surge in inflation, Hatzius said.
“Rates need to stay low,” he said. The Fed “could become more aggressive in purchasing assets. They have not gotten a lot of bang for the buck on that policy so far.”
U.S. unemployment will surge to 10 percent this year and the budget deficit will widen to $1.5 trillion next year, reflecting a “deeper recession” than previously expected, the White House said today.
Pfft. I'm unimpressed. There are no more validations remaining for the Fed to expand its balance sheet regardless of whether we are referring to $1 or $1 trillion. Not one penny more. What is going to happen to Maiden Lane parts 1, 2, and 3? Does the Fed plan to fund Obamacare all on its lonesome? Is it truly "handmaiden to the Treasury" like Dallas Fedhead Richard Fisher insists it most certainly is not? (please see my July 23rd Dallas Fed's Fisher: "The Fed is not the Treasury's Bitch, Bitch" for further clarification on that point)
Perhaps Fisher did not get the memo because it appears to me as though the Fed has just been turned into the Treasury's bitch, bitch! LOLZ!