{"id":41950,"date":"2018-12-24T12:16:30","date_gmt":"2018-12-24T17:16:30","guid":{"rendered":"https:\/\/olduvai.ca\/?p=41950"},"modified":"2018-12-24T12:16:30","modified_gmt":"2018-12-24T17:16:30","slug":"seeds-of-market-collapse-in-the-federal-reserves-autopilot-balance-sheet-normalization","status":"publish","type":"post","link":"https:\/\/olduvai.ca\/?p=41950","title":{"rendered":"Seeds of Market Collapse in the Federal Reserve’s “Autopilot” Balance Sheet Normalization"},"content":{"rendered":"

Seeds of Market Collapse in the Federal Reserve’s “Autopilot” Balance Sheet Normalization<\/a><\/h3>\n
\n
A lot of talk last week centered around the potential for the Federal Reserve to revise their planned “normalization” of holdings on their balance sheet.\u00a0In particular in the post FOMC press conference, Powell said, \u201cI think that the runoff of the balance sheet has been smooth and has served its purpose and I don\u2019t see us changing that,\u201d…and then \u201cThe amount of runoff that we have had so far is pretty small and if you just run the quantitative easing models in reverse, you would get a pretty small adjustment in economic growth, and real outcomes.\u201d<\/p>\n

Trouble is, the correlation of changes in the Fed’s balance sheet to changes in asset prices are unambiguous that Powell is either unwittingly\u00a0wrong or, more likely, knowingly collapsing an asset bubble that was in large part created by the Federal Reserve itself.<\/p>\n

Fed Held Treasury’s<\/u><\/strong>
\nTo set the table, the chart below shows the total Federal Reserve holdings of\u00a0US Treasury’s\u00a0(blue line) and weekly changes (yellow columns) from 2003 to present.\u00a0 The August ’07 through January ’09 period is noteworthy as the only period with a like\u00a0Treasury holding drawdown to what we are presently witnessing.\u00a0 The subsequent highlighted areas show the periods of no growth in Treasury holdings, or most recently the outright declines.\u00a0 The most recent period represents just\u00a0$230 billion reduction of a proposed $1 trillion total “normalization” in Treasury holdings.
\nPerhaps the reason\u00a0equities tanked when Powell\u00a0suggested that the Fed’s plan to normalize its balance sheet was on “auto-pilot” can be seen in the chart below.\u00a0 Red line is the Wilshire 5000 (representing all publicly traded US equities) and\u00a0yellow columns are the weekly change in the Federal Reserve’s holdings of Treasury’s.\u00a0 On the five occasions (highlighted again)\u00a0since 2007 that the Fed has ceased buying or outright sold Treasury’s, the Wilshire has gone into convulsions or outright cracked lower.<\/div>\n

\n

\u00a0\u2026click on the above link to read the rest of the article\u2026<\/p>\n<\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

Seeds of Market Collapse in the Federal Reserve’s “Autopilot” Balance Sheet Normalization A lot of talk last week centered around the potential for the Federal Reserve to revise their planned “normalization” of holdings on their balance sheet.\u00a0In particular in the post FOMC press conference, Powell said, \u201cI think that the runoff of the balance sheet […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[2],"tags":[49,14704,303,305,500,3650,12676],"class_list":["post-41950","post","type-post","status-publish","format-standard","hentry","category-economics","tag-balance-sheet","tag-economica","tag-fed","tag-federal-reserve","tag-market-collapse","tag-us-federal-reserve","tag-us-treasurys"],"_links":{"self":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/41950","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=41950"}],"version-history":[{"count":1,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/41950\/revisions"}],"predecessor-version":[{"id":41951,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/41950\/revisions\/41951"}],"wp:attachment":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=41950"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=41950"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=41950"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}