Monday, July 13, 2009
The Fed pumped $1 trillion into the banking system over the past year through bond purchases and emergency loans, doubling assets on its balance sheet. Reassuring investors that inflation won’t exceed forecasts once the recession ends will give the Fed more credibility, said Dean Maki, chief U.S. economist at Barclays Capital Inc. While policy makers have spoken about specific tools they may use, they haven’t laid out a strategy.But according to Cactus at Angry Bear - we differ on our views of Ben Bernanke as a central bank Chair - the Fed has already begun implicitly exiting....by not raising its balance sheet since December.
“Now is the time to articulate the exit strategy,” said Vincent Reinhart, former monetary-affairs director at the Fed and now resident scholar at the American Enterprise Institute in Washington. “The Federal Reserve doesn’t speak with one voice and the testimony is an opportunity to present the consensus view."
As is often the case, what we all know is false. Wrong. Bull$#%&. The Fed has not been pumping money into the economy lately, at least if you define lately as being “since December” and going through May, the last date for which data is publicly available in FRED, the Federal Reserve Economic Database maintained by the St. Louis Fed. Check out the following graph from FRED, which shows M1, the narrowest of the monetary aggregates, and the one most perfectly controlled by the Fed (see the chart on his post)Point: the Fed is no longer pumping out the money. It obviously views financial markets as stable enough, but that leaves so many questions unanswered. What about toxic assets? Defaults? Credit? Regulation? We will see when Ben gets in the hot seat (once more) next week.
So during one of the lowest points for the US economy in decades, only the North Korean counterfeiting machine was doing anything to keep the money supply loose.