re: Will we see any balanced budgets/surpluses under Trump's next admin?

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Yet while everyone was almost exclusively focused on the Fed’s intentions to cut interest rates this week, they were ignoring the more important story. The Fed’s balance sheet, and how bonkers it remains.

If you recall, before the great financial crisis and the advent of quantitative easing (QE) in 2008, the Fed’s balance sheet was at about $800 billion. This was about 6 percent of GDP.

Then, between 2008 and 2014 the Fed jumped its balance sheet up to $4.5 trillion. Then, during the coronavirus panic, it ballooned its balance sheet up to $8.9 trillion by 2022.

The assets the Fed holds on its balance sheet generally consist of Treasuries, mortgage-backed securities, and some corporate bonds. Where the Fed gets the credit to buy these debt instruments is a sort of chimera. In short, it creates the credit out of thin air.

Since early-2022, the Fed has contracted its balance sheet by $1.6 trillion to just under $7.3 trillion. However, at this level it still amounts to 26 percent of GDP. This, in addition to runaway deficit spending, is why consumer prices will never return to pre-pandemic levels.

Dollar Debasement Ad Infinitum
Attached to this week’s FOMC statement was the customary implementation note. This implementation note is largely ignored.

Per the note, monthly balance sheet reduction of Treasuries is limited to $25 billion and monthly reduction of mortgage-backed securities is limited to $35 billion. Prior to May 2, Treasury holdings were reduced by $60 billion per month.

This tapering of the rate of balance sheet reduction means total assets held by the Fed will never return anywhere close to what they were in 2019. In short, the inflation of the money supply that occurred between 2020 and 2022 is permanent.

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