Free exchange: Why the Federal Reserve should keep its balance-sheet large

Posted: April 14, 2017 in economy
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Why the Federal Reserve should keep its balance-sheet large

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HOW much money should exist? The Federal Reserve must soon confront this deep question. The Fed has signalled that towards the end of 2017 it will probably begin to unwind quantitative easing (QE), the purchase of financial assets using newly created bank reserves. The central bank’s balance-sheet swelled from about $900bn on the eve of the financial crisis to about $4.5trn by 2015 as it bought mortgage-backed securities and government debt (see chart). If and when the Fed shrinks its balance-sheet, it will also retire the new money it created.
Economists such as Milton Friedman popularised the study of the quantity of money in the 1960s and …

via Economic Crisis


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