For part 1 of this post that explains what the balance sheet is, click here. Since 2008, first because of the great recession of 2008-09 and now because of the COVID-19 crisis, the assets on the Fed balance sheet have ballooned with the Fed’s aggressive purchases of assets to keep the economy afloat. The theory behind this is that the Fed will provide liquidity to the market temporarily and hold asset prices stable until the market has a chance to recover on its own. Then, when the market recovers, the Fed should be able to sell off the assets on its balance sheet without tanking these asset markets. In practice, though, assets on the Fed’s balance sheet have not substantially contracted since it began ballooning in 2008. You can see that clearly in this chart:
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The Fed's balance sheet, part 2: So, what's…
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For part 1 of this post that explains what the balance sheet is, click here. Since 2008, first because of the great recession of 2008-09 and now because of the COVID-19 crisis, the assets on the Fed balance sheet have ballooned with the Fed’s aggressive purchases of assets to keep the economy afloat. The theory behind this is that the Fed will provide liquidity to the market temporarily and hold asset prices stable until the market has a chance to recover on its own. Then, when the market recovers, the Fed should be able to sell off the assets on its balance sheet without tanking these asset markets. In practice, though, assets on the Fed’s balance sheet have not substantially contracted since it began ballooning in 2008. You can see that clearly in this chart: