The balance sheet
Assets:
- Treasury notes and bonds
- mortgage-backed securities Liabilities:
- US currency in circulation
- money deposited by banks in Fed (reserves)
Expanding and shrinking
-
“expanding the balance sheet”: buying assets like treasuries and mortgage-backed securities. Quantitative easing / Large Scale Asset Purchases. ^citze7j
- seeking to increase prices and lower yields
- The Fed has an unlimited supply of currency to buy assets
-
“shrinking the balance sheet”: shrinks its monetary reserves by selling assets (or letting them mature) and removing them from its cash balance. This removes money/liquidity from financial markets.
[[quantitative-tightening|Quantitative Tightening]]❌.
Connection to citizens
Our connection to the Fed balance sheet:
- dollars in your pocket are their liability
- bank reserves boosted by our deposits