February 16, 2022

Is the Fed being Fair?

Since December 2002 the Fed has increased the assets on its balance sheet by almost 8 Trillion dollars.  

When the FED increases it's balance sheets it creates money by taking the assets from a seller and crediting the seller with dollars in the banking system. These dollars are then saved in small part with the remaining respent through consumption or investment, with these respent funds then being saved in small  part and then further respent through consumption or investment and so on and so on.  The result is that the 8 Trillion injected into the economy results in a manyfold increase in the supply of money in the economy.

All of this money in the economy leads to lower interest rates, more investment and more spending AND when done to excess can lead to inflation.

A few observations.

It can make sense for the FED to inject money when there is a crisis like we see in the real estate crisis (1.2 trillion) and the pandemic (3.25 trillion.)  

What doesn't make clear sense to me is the significant difference in money that the FED has injected into the economy between the different political parties controlling the Whitehouse.  We see dramatic injections during Obama and Biden. We see much small injections and even withdrawals during Bush and Trump.


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