Friday, September 11, 2009

Fed's No Exit Strategy

Here's Fed's balance sheet.

Noinflationistas claim that because the size of the balance sheet has not increased, no inflation.

But take a look of the composition...

The long term stuff (ie. cannot be withdrawn from the money system) has nothing but kept increasing.

The short term stuff is being displaced (mostly swaps with other central banks)

Now... With approx $2 trillion outstanding, there is now $1.5 trillion that is literally stuck in long term stuff ($500 billion of short term stuff left).

Anyhow, the long term stuff is growing at $128 billion MoM (month over month) as of which means that if the Fed were to continue the switch from short term to long term WITHOUT increasing the size of money, all short term stuff with be gone within months.

And if they choose to carry on increasing the long term stuff... The balance sheet will increase in size, which means even the crappiest private banker know how to sell gold as protection.