Author Topic: How Long Can Fed Buy Everything?  (Read 3365 times)

wescobrk

  • Hero Member
  • *****
  • Posts: 756
How Long Can Fed Buy Everything?
« on: May 20, 2020, 09:12:34 PM »
Anyone want to chime in about how long the Fed can continue expanding their balance sheet at this rate until the capital markets start to go south?
The Fed says they don't have a limit.
This is pretty fascinating stuff as far as how long their buying everything (including junk bonds even buying etfs) even talk of buying equities at some point.
I think their balance sheet is up to about $7 trillion. So the Fed's balance sheet is about 1/3rd of GDP. I'm not sophisticated enough around macro economics as far as what point the capital markets will no longer be propped up. 50%? 100% 200%?


dpetrescu

  • Full Member
  • ***
  • Posts: 115
Re: How Long Can Fed Buy Everything?
« Reply #1 on: May 20, 2020, 09:47:39 PM »
Thereís an interesting interview with Howard Marks on Bloomberg and he talks about this. His theory is the markets are a plastic ball hovering over a jet of water held by the Fed. Once the Fed turns off the jet, itís pretty obvious what will happen to the plastic ball.
https://youtu.be/snZ_thb8F7Q

valueinvestor

  • Sr. Member
  • ****
  • Posts: 269
Re: How Long Can Fed Buy Everything?
« Reply #2 on: May 21, 2020, 12:18:30 AM »
Not to be wisecrack, but if anyone knew the answer to that - they would be the next richest person in the world.

I don't think an approximation can be made.

SHDL

  • Hero Member
  • *****
  • Posts: 559
Re: How Long Can Fed Buy Everything?
« Reply #3 on: May 21, 2020, 04:33:58 AM »
The BOJís balance sheet is already above 100% of Japanese GDP and their economy/markets are not blowing up, so I imagine the Fed can keep going for a while if they want to (and Congress supports them). I donít know how far they can go though. I would certainly keep an eye on Japan for clues if this interests you.

Cigarbutt

  • Hero Member
  • *****
  • Posts: 2319
Re: How Long Can Fed Buy Everything?
« Reply #4 on: May 21, 2020, 05:09:12 AM »
A fascinating aspect is that central banks have allowed to be put on a path that leads to overt, direct and explicit monetary government financing.

An incredible amount of effort has been put into blurring lines.

These issues are mostly irrelevant when reading footnotes of financial statements but there's got to be a point (depends on the definition of margin of safety i guess) when this would be considered bothersome.

Analogy from an anecdotal perspective. One of my daughters just finished a relationship and weíve been talking. It was a relationship that was not made to last and i was (secretly) hoping that it would end earlier than late (lasted about 18 months). At first, she talked about the triggers and then we moved to the slippery slope aspect which (she now realizes) started a while back. Relationships based on poor premises should be ended earlier rather than late.

The timing is unclear but Iíve become increasingly convinced that appeasement of financial markets will eventually be considered as one of the most colossal failures of modern times.
Disclosure: Stuff Iím reading these days is related to the dynamics that led the Japanese army leaders to develop the kamikaze strategy. I humbly suggest that they should have inverted. But itís not easy.

Today is shaping up to be a sunny day. :)

Gamecock-YT

  • Hero Member
  • *****
  • Posts: 643
Re: How Long Can Fed Buy Everything?
« Reply #5 on: May 21, 2020, 05:09:30 AM »
The BOJís balance sheet is already above 100% of Japanese GDP and their economy/markets are not blowing up, so I imagine the Fed can keep going for a while if they want to (and Congress supports them). I donít know how far they can go though. I would certainly keep an eye on Japan for clues if this interests you.

yeah, was going to say to just look at Japan. The test will be if the Fed is able to take the foot off the gas with the market not throwing another taper tantrum that kept QE going on seemingly indefinitely.

scorpioncapital

  • Lifetime Member
  • Hero Member
  • *****
  • Posts: 2016
    • scorpion capital
Re: How Long Can Fed Buy Everything?
« Reply #6 on: May 21, 2020, 05:37:56 AM »
They will go until they lose control. Then they will cancel debt/loans/finance the government. The hyperinflation will have already caused great poverty so they can go in reverse then and claim things are getting better. The history of the world and human nature often repeats and people have short memories. How many zeroes did they cut off currencies in former communist Eastern European countries and Russia? People lost all their money. Then they start again. But trust in government gets worse and worse and then , well..chances are you've already lived your lifetime before even a part of this cycle plays out for you )

stahleyp

  • Lifetime Member
  • Hero Member
  • *****
  • Posts: 3665
Re: How Long Can Fed Buy Everything?
« Reply #7 on: May 21, 2020, 05:39:45 AM »
Why couldn't the Fed just keep pumping money in until vaccine is created? Showing my ignorance here but does Powell make the final decision or is there a vote at these Fed meetings? If one person makes the decision, I would imagine that pumping unlimited amounts make that more possible.
Paul

wescobrk

  • Hero Member
  • *****
  • Posts: 756
Re: How Long Can Fed Buy Everything?
« Reply #8 on: May 21, 2020, 05:40:06 AM »
If inflation ever exceeds 2.5% that would the point of them stopping (or at least reducing a lot) and that is when the capital markets will behave violently.
Jay Powell is doing a hell of a job as far as keeping the markets flowing.

wescobrk

  • Hero Member
  • *****
  • Posts: 756
Re: How Long Can Fed Buy Everything?
« Reply #9 on: May 21, 2020, 05:42:39 AM »
That seems the likely stopping point (vaccine). I think they have already expanded their balance sheet by 2-3 trillion since March so if a vaccine happens in summer of 2021 and able to be mass produced then I suppose we are looking at a Fed Balance Sheet of another 12-15 trillion or about 110-120% of GDP.