The Fed's Balance Sheet May Be Headed To $40–$50 Trillion

President Trump has said often that he had “created the greatest economy the world has ever seen until the China virus came.” Maybe some people believe that, but if the economy was so great why did the Fed keep interest rates at zero and its balance sheet at $4 trillion? 

The president is bragging about the third-quarter GDP bump; however, as David Rosenberg tweeted, “Even with the Q3 GDP snapback, a snapback that is now stalling, 2020 likely goes down with a –4% print, by far the worst year for the economy in the post-WWII era.”

Maybe the economy wasn’t so hot. Danielle DiMartino Booth, who once worked for Richard Fisher at the Dallas Fed, told Raoul Pal on Real Vision,

September the 16th [2019], when they launched Not QE. Because the inversion of the 2s 10s had passed the 30-day mark, and they're like, oh my god, history says that we're in recession. 

Well, no kidding, we're in recession. World trade was contracting for the entire year of 2019. Lacy Hunt will tell you, you have to go back to the double-dip recession of the 1980s or 2007- 2009, that era, before you had global contraction in global trade. Of course, we were headed into recession. But it was very slow.

There were the good old days when the Federal Reserve’s balance sheet footed to all of $800 billion in assets. In November 2008, the depth of the great recession, the Fed’s assets exploded to over $2 trillion. By 2015, Fed total assets had reached $4.4 trillion. Of course, when coronavirus hit, Fed assets popped to over $7 trillion. 

Some people predict $10 trillion by year-end 2020. Who knows? Jerome Powell is pushing for fiscal stimulus and claims his operation has more ammunition if forced to use it. DiMartino Booth told Pal,

The Hippocratic Oath is nowhere in the Eccles building. They don't understand Do No Harm. They don't understand Do Nothing. They can't. 

And the market and market participants, they need to know that the Fed is doing something, because if they don't, they're just staring at a pile of insolvent crap. So they have to know that there is something being done on behalf of them. And the reason that every Fed official has been begging for stimulus spending is they want $3 or $4 trillion of new product out there to buy and continue to aggressively grow the balance sheet. 

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