Look at this chart. What do you see?
Now this chart?
And this chart, what type of thoughts come to mind?
The above images show the same thing, the Fed’s balance sheet, the only difference is the time frame (from 2007, 2018, and 2022 until today). Looking at the charts, I see inflation in its historical definition, being the expansion in the supply of money and credit; I also see one of the world’s largest accounts receivable balances, which is unlikely to ever get fully paid off; I see money creation, counterfeiting, and currency debasement.
The balance sheet fully displays the record of the Fed’s monetary injections. For those who can recall, this is typically followed by financial ruin. It is through understanding the nature of central banking and the ebbs and flows of the balance sheet, where one can make a fair prediction as to what the future has in store.
Even if central bankers were moved by altruistic views, the mere fact they possess the ability to determine the national interest rate and manage the money supply makes them superfluous. Therefore, by taking market intervention where none is required, they only make matters worse.
What cannot be easily quantified, but should be considered, is the amount of effort the world spends trying to anticipate the Fed’s actions. If investors and entrepreneurs were able to focus on what the market will do next, instead of what the Fed will do next, the world would be a much better place to live, and resources would be allocated far more efficiently.
In 2010 Dr. Bob Murphy wrote about this problem:
Knowing that the bank had the ability to inject massive doses of new money into the market, investors and businesspeople would have less faith in the long-run purchasing power of the money unit. They would spend time and devote resources to hedging themselves against erratic central banking decisions, rather than focusing exclusively on the “fundamentals.”
This is exactly where many have been their entire lives. Way too much time and effort is dedicated to interpreting the latest policy stance, while mainstream economists largely seem incapable of envisioning a world without central banking. As for the masses, they appear to be unaware of the nefarious scheme we call monetary policy.
Despite no one being able to guarantee the size of the balance sheet a year from now, let alone by this Thursday’s data release, each new day brings the potential for a new crisis, and with that the opportunity for a new market intervention. Until the Fed is properly disbanded or at least incapacitated, we must continue to read their tea leaves, interpreting this Federal Rorschach of balance sheet expansion, Fedspeak, and historical failure.
To flourish during a period of dollar depreciation and economic catastrophe, it behooves everyone to at least try to predict the movements of our erratic and certainly compromised central bank. When looking at the balance sheet, everyone might see something different, but if there’s anything it helps reaffirm, it’s that in the long run, the balance sheet, money supply, and most prices will only go up. This is all part of some grand design by the Federal Reserve in a financial system where those at the bottom pay dearly for those at the top.
