Federal Reserves Balance Sheet Reduction?!

The Federal Reserve has informed the world that they are going to start a balance sheet reduction this month.

What is a balance sheet reduction?

You can look at as the opposite of Quantitative Easing (QE).  If you recall the Federal Reserve dumped over $4.5 Trillion dollars in to the system from 2008 to 2014.  Now they are taking that money back with interest.

Janet Yellen announced that the Federal Reserve would start unloading securities ranging from $10-$30 billion a month, to reduce their balance sheet. If they are wanting to reduce their balance sheet by the same $4.5 trillion that they pumped and dumped in the system, it’ll take the next 13 to 33 years (at $10-$30 billion a month) to get them back to pre-2008 levels (pre-QE).  No one is sure how long it’ll take for sure, as no one has ever experienced this, they have no clue what this may do the economy.

By reversing QE (aka balance sheet reduction) the Feds will no longer reinvest interest payments and principal from the maturing securities the Feds bought with their $4.5 trillion injection of cash back in the bond market. Will this crumble the foundation that QE has created?

If the Feds are taking the markets support system out, obviously it isn’t there to shore it up. What happens when you take the support from anything? It falls. QE has been needed to put and keep the markets at record breaking levels. It goes with reason that if you take away the foundation of anything, even if you take it away slowly, whatever was being built on that foundation will eventually fall.

Remember, this has never happened before, on either side, this level of QE and now the off loading of securities (“balance sheet reduction”).  It is a shot in the dark to see what will come of it.

The only thing that the Feds have to argue that could be seen as any type of “success” for their QE was getting the stock markets to the levels we have been experiencing the last few years.  That would have never happened was it not for QE, period.

Even the Fed knows that the stock market is so over inflated that it’s on the verge of bursting, taking trillions of dollars and millions of people’s pensions and savings and investments with it.  Don’t worry about the big boys who have used QE all these years as a way to conduct corporate stock buy backs to make them look as if they are performing better than they truly are, I assure you they will be fine.  I can give you a guarantee here, the Fed will not allow the big boys to lose too much money, if any.  The big boys have had years of prep for this, they’ll be fine, passing the losses to outside investors.  Keep in mind that they are starting out at a mere $10 – $30 billion a month, sadly that amount is petty in the grand scheme of things.  I assure you if something does go wrong and the big boys start losing out, they’ll be deeded too big to fail and we’ll bail them out.  It’ll be the little investors (you know, the ones who need and rely on the money) who will lose it all first.

I do believe that the very second the Feds feel this may hurt the big boys they will reverse their reversal. Yes, I am saying that the Feds may start another round of QE (verses simply halting the balance sheet reduction), putting even more money in the system to “fix” whatever gets damaged by their balance sheet reduction scheme.

There is a lot at stake here, one of the biggest risks is the US Dollar.  The US Dollar’s fate hangs in the balance here. This move is like a giant, very expensive, extremely risky game of “Jenga”. With every passing month the fed will be pulling out a piece of the structure that is not only holding up the markets but holding the dollar (and in turn our economy) up as well.

What’s great for any economy? A major war.  Keep that in mind.

The obvious questions you have to ask yourself is are you prepared? Do you have insurance to protect yourself from the Fed’s decisions?

Owning physical gold and silver is the only tried and tested form of financial insurance. In this very complicated and complex economy, having protection is as simple as owning physical gold and silver.

If you’re not taking the steps needed to protect yourself, your savings, your retirement, your financial future, now is that time!

 

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