Listen Carefully, Do You Hear That?
Probably not. While you’re fast asleep a ton of money is being sucked right out from under the U.S. Economy. It works silently but not all things in life give us fair warning once they commence, just like not all things give off a scent or make noises, only after the fact will we assess that yes indeed the culprit was all those $trillions that escaped the Federal Reserve’s historically ballooned-out balance sheet. A balance sheet that got so big, in the neighborhood of a whopping $9 trillion, that’s the extent that these Socialist Democrats in Congress had this economy on “training wheels”, an unprecedented amount in Trillions of dollars borrowed that the Federal Reserve had harbored in U.S Treasury offerings and, in turn, monetized – pushing these dollars to the balance sheet of major banks in essence to loan back out. Now all that is beginning to come back to roost, and every day really. My hope is that finally the Federal Reserve is involved in a “very necessary” unwinding of its historical balance sheet; an amount so large as to never before been witnessed in the history of this country. You might ask, why are we talking about this and how does this affect me? Read on.

Findings –
I was looking for the level of U.S. Treasuries currently owned by the Federal Reserve resulting from their numerous quantitative easing programs over several years. I wanted to see if they are indeed shrinking their balance sheet and by how much has it shrunk while inflation was soaring in the country? This is a very important step in shrinking the money supply and hence eliminating annual U.S. inflation [above the Fed’s target of 2.0%]. I suspected all along that this Federal Reserve Board was also a victim of woke Leftist politization just like our SEC, the IRS, the FBI, and most other federal agencies in Washington. I had difficulty finding anything online regarding their current holdings so I sent a message to them and to their credit they kindly responded providing me with a link and letting me know future release dates, etc. This is exactly how to treat a taxpaying citizen of the country seeking public information so I thank them for that.

The Matter at Hand –
Reviewing the Federal Reserve’s latest information for October 2023 it appears that their balance sheet is shrinking, but most likely due only to attrition, that is [bonds rolling off their balance sheet as they mature]. The reason I say that is it’s only shrunk by around 12% over the past two years? The good thing is as least they are no longer looking like that aggressive buyer of our U.S. Treasury debt [an economic stimulus measure], something we do not need as these type measures fuel inflation.

What You Need to Know –
The difference in the numbers between 12 to 18 months ago and today is down only $1 Trillion dollars. If I recall the Federal Reserve purchased and owned close to $9.0 Trillion in U.S. Debt, now it appears that figure has shrunk to $7.4 Trillion. Their current holdings are primarily a mix of $4.9 Trillion in U.S. Treasuries and around $2.4 Trillion in mortgage backed debt, along with some other miscellaneous pieces. How big is this? Well, it’s the largest holding of U.S. debt in the history of the country, reaching almost $9 Trillion at one point, it was Quantitative Easing [QE] at its finest I tell you! Only countries that want to go under do something like this because the unwinding of all that “feel good” medicine has to run its course at some point, that’s around the time that “reality” sets in. That’s why I’m writing this piece to let you know where we are or are heading toward, a true reality check.

The Federal Reserve is Involved in a Squeeze Play –
I’ve written about this issue before. So you think because the Federal Reserve has slowed its rate tightening cycle that this signals a green light for equities, and the overall economy? The real [monetary policy] tightening hasn’t even begun. The true tightening cycle begins once they commence to shrink their balance sheet. An all out unloading of that volume of bond holdings in the open market will have drastic effects on U.S. interest rates. I cannot be certain of the maturities they hold but I assume they are primarily in the 10 to 20 year maturity range, along with some intermediates, or 1 -to -5 year maturities. I hope you can see now why this can be a major problem for the Federal Reserve, the overall economy and the Democrats in Washington, D.C. Just doing nothing and letting these bonds roll off their balance sheet [without selling] could take a couple decades to complete. The U.S. economy doesn’t have two decades to correct an inflation problem, we don’t even have two years! In my mind the Federal Reserve must begin selling their treasury holdings, which is going to place gargantuan pressure on rates to rise across the yield curve but certainly having a larger effect on the long end. Just as an example, consistent selling pressure could take the 10-treasury yield from where it is today, around 5.0% plus or minus, to say 8% or even higher, a 10-12% handle? We haven’t seen rates in this country like that since the 1970’s – 80’s.

What Happens Next?
There’s good news and bad news, but first the bad news – the U.S. economy would plummet, [along with the stock market], into recession rather quickly from the shock of this profound rise in rates and the Fed knows this is true. The good news is two-fold, inflation would completely disappear and along with that rates will begin to contract rather quickly on their own as economic activity shrinks. The Federal Reserve will then have the ability to actually pivot on its rates strategy once the irresponsibly large inventory of treasuries is off their books for good.

Why Doesn’t the Federal Reserve Smell the Roses and Take the Medicine?
It’s mostly political, like all extensions of the federal government, they are afraid of doing anything outside the Utopian vision of the Woke Leftist media. Besides they know that [for a short while anyway] rates would sore and Democrats controlling Washington politics have overspent and continue to propose new programs of spending, even promising tax dollars to America’s enemies. Thus, with this much borrowing of what we don’t have just the interest payments on existing debt alone is already enough to choke a whole corral of horses. These woke liberal agencies don’t want to make the irresponsible Democrats have to pay higher rates of interest on any new issuance to fund their unnecessary programs either. These concerns have landed the Federal Reserve is a pickle – a tight squeeze between biting the bullet and doing what’s good for the country or saving face in their positions and hoping we don’t call them out on the real problem here. I think the clock is ticking, been ticking for awhile just begging some leadership to resolve this U.S. debt crisis. No illusion here – these are facts!

It’s One Big Leftist Mess Our Country is in Right Now –
The Leftists want a Socialist state but they’re not willing to accept what accompanies that which is runaway inflation. See Democrats still believe that Utopia’s exist out there, a Socialist-style state in the absence of inflation, it never has and never will. The economies of all Socialist states collapse and the United States Economy will be no different. I sure hope our Federal Reserve gets more aggressive and “takes the medicine” by unloading their balance sheet. Let’s get what has become “the inevitable” over and done with!

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