What is your outlook on the economy?

There will definitly be a huge reset in the near future.

GET THE BUGOUT BAGS AND CANNED GOODS READY!!

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There will definitly be a huge reset in the near future.

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This... Everything is inflated and suppressed by QE IMO

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Federal Reserve balance sheet looks like garbage and needs to be fixed

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Now we're getting to the heart of the matter. The federal reserve has pumped nearly $4 trillion of new money into the US economy in the last five years. They did that because our debt has become increasingly intolerable for many decades and the only way to maintain the illusion of economic growth was to keep lowering interest rates and allowing more debt to accumulate. After lowering interest rates for 30 years continuously, they finally arrived at zero on short term debt and it still wasn't enough stimulus to keep the economy from spiralling into an economic black hole of deflation and defaults. So they effectively made interest rates negative, by taking the entire yield curve below the rate of inflation. They did that by printing money and buying bonds at very low yields.

All those new dollars were used to finance the government, but nobody had to pay. Trillions spent by recipients of government benefits, trillions of consumption that weren't paid out in the form of corporate wages, or collected in taxes, or borrowed from bond buyers. Good for corporate profits, damn right, especially when corporate borrowing costs were driven down too. Mortgages financed at rates that no sensible lender would offer, at least not without a government guarantee and a federal reserve assurance that home prices wouldn't be allowed to drop. Ben Bernanke made it very clear, he'd print as much money as it took to keep that from happening. Taxes remained low, budget deficit soared, but interest rates didn't rise because the money wasn't borrowed, it was created.

It makes an economy look viable (for a while) if asset prices rise faster than the borrowing cost to finance those assets. The problem is that when the debt load becomes extreme, that can never be undone without causing massive destruction in the bond market. So, the fed has to keep short term rates permanently well below the rate of inflation. That real (inflation adjusted) negative yield has to become more negative over time (just like it has decreased in a straight line fashion over the last 30 years) in order to refinance the compounding old debt as well as new debt required to "grow the economy", pay unfunded obligations like social security and medicare, pension plans, etc. Lenders must accept an increasingly negative return after inflation, until the only lender left will be the central bank, which can create money out of thin air. Everyone else will spend or invest their money immediately to avoid loss of purchasing power.

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wdhalgren

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Post more.

FWIW, I think the Fed's balance sheet is actually in better shape than it has been in a long time. I'm not saying that's saying a lot, or that I'm 100% comfortable with it, I'm just saying what I said.

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The fed bought bonds from teh banks and that cash is still sitting on balance sheets at the banks.

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Of course it's sitting in the banks. Where else would it be, in mattresses? Just because new money ends up in the banking system doesn't mean it wasn't spent, or invested. It absolutely was and without the fed's money printing the market would have continued to crater for years. Corporate profits rose because people were spending money that was essentially free, not taxed, or borrowed, or paid as wages.

I suggest you look at stock charts for argentina, or venezuela, or zimbabwe a few years back, or Weimar Germany. A rapidly expanding money supply and rising stock prices go hand in hand.

Sorry, gotta disagree with you, corporate profits have not been inflated due to QE. My point was that money that the federal reserve used to purchase bonds is still sitting there in cash, banks are still not lending like that once were.