Short-lived QT, revisited – we will soon all be Japanese by for DK Analytics
First, a US dollar valuation comment:
As some of you may know, I have long thought the buck tremendously overvalued, especially based on the huge and growing deficits America has at both the governmental and the trade levels. Just as I like free cash flow generating companies, same thing applies for countries and their currencies. Alas, the dollar has long defied gravity, cheering on a hugely negative free cash flow nation and extending America more rope to hang itself with. And it continues to defy gravity and econ 101. There is only one explanation that makes any sense to me whatsoever currently, and it is a tragic thought: with no resolution in sight on the Ukrainian war front — deep state puppet Zelenksy won’t save his own people by declaring the Ukraine a neutral nation, the West refuses to stop arming the Ukraine as both Sweden and critical Finland are being incentivized to join NATO, and Russia most understandably refuses to have NATO and NATO missiles on its border after decades of NATO (the US and its European lackeys) provokingly and accord shatteringly moving east — money/capital could be heading for American shores to distance itself from a potentially frightening and possibly even nuclear war in Europe. God help us all if this happens.
If the ultimate horror doesn’t happen, despite our psychopath politicians, let me ask you this: would you rather own a currency whose central bank prints the money to buy huge amounts of vital goods it needs to procure overseas or the currencies of nations that sell them to America?
Fed QT and Fed QE:
Back to the topic of this post, namely short-lived QT, revisited, a topic that I published on numerous times, including in a post from 2018, Post #44, where one of the sections was titled: “That Fed QT (bond sales) will morph into record Fed QE (bond purchases or debt monetization) amidst reversion beyond the mean.” Note that between November 2016 and September 2019, the Fed’s balance sheet fell from $4.47trn to $3.78trn, a reduction of nearly $700bn over 2.8 years, or an average annual reduction of $250bn. Please see link above for both the depiction and the balance sheet numbers upon which the graph is based.
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From that $3.78trn low point, the Fed’s balance sheet, mostly consisting of short-term US debt and to a lesser degree mortgage bonds, has ballooned to $8.96trn in just 2.7 years, an increase of 137% or a whopping $5.2trn. Makes the $700bn balance sheet reduction over a similar time period look puny.
