Topic: Fed will shrink liquitity (Read 145 times)

The Fed has already begun to reduce its bond-buying program from about $120 billion a month, so the pandemic required some extraordinary measures.
Liquidity is a problem in normal cases but people need to pay and back to normal life.
Inflection will be at 13% for some years but it will back to 4% at the end of 2025

https://www.thoughtco.com/history-of-us-federal-budget-deficit-3321439

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By Tom Murse
Updated July 26, 2021
The budget deficit is the difference between the money the federal government takes in, called receipts, and what it spends, called outlays each year. The U.S. government has run a multibillion-dollar deficit almost every year in modern history, spending much more than it takes in.


The opposite of a budget deficit, a budget surplus, occurs when the government’s revenue exceeds current expenditures resulting in an excess of money that can be used as needed.

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Budgeting for an Online Education
In fact, the government has recorded budget surpluses in only five years since 1969, most of them under Democratic President Bill Clinton.

 In all-too-rare times when revenue equals spending, the budget is called “balanced.”

Adds to National Debt
Running a budget deficit adds to the national debt and, in the past, has forced Congress to increase the debt ceiling under numerous presidential administrations, both Republican and Democrat, to allow the government to meet its statutory obligations.

Although federal deficits have shrunk markedly in recent years, the Congressional Budget Office (CBO) projects that under current law increased spending for Social Security and major health care programs, like Medicare, along with increasing interest costs will cause the national debt to rise steadily over the long term.

The larger deficits would cause federal debt to grow faster than the economy. By 2040, the CBO projects, the national debt will be more than 100% of the nation’s Gross Domestic Product (GDP) and continue on an upward path— “a trend that cannot be sustained indefinitely,” notes the CBO.


Notice particularly the sudden jump in the deficit from $162 billion in 2007, to $1.4 trillion in 2009. This increase was due primarily to spending for special, temporary government programs intended to re-stimulate the economy during the "great recession" of that period.

Budget deficits eventually tapered back down into the billions by 2013. But in August 2019, the CBO predicted the deficit would again surpass $1 trillion in 2020—three years earlier than it had originally expected.

Here is the actual and projected budget deficit or surplus by fiscal year, according to CBO data for modern history.

2029 - $1.4 trillion budget deficit (projected)
2028 - $1.5 trillion budget deficit (projected)
2027 - $1.3 trillion budget deficit (projected)
2026 - $1.3 trillion budget deficit (projected)
2025 - $1.3 trillion budget deficit (projected)
2024 - $1.2 trillion budget deficit (projected)
2023 - $1.2 trillion budget deficit (projected)
2022 - $1.2 trillion budget deficit (projected)

2021 - $1 trillion budget deficit (projected)
2020 - $3.3 trillion budget deficit (projected)
2019 - $960 billion budget deficit (projected)
2018 - $779 billion budget deficit
2017 - $665 billion budget deficit
2016 - $585 billion budget deficit
2015 - $439 billion budget deficit
2014 - $514 billion budget deficit
2013 - $719 billion budget deficit
2012 - $1.1 trillion budget deficit
2011 - $1.3 trillion budget deficit
2010 - $1.3 trillion budget deficit
2009 - $1.4 trillion budget deficit
2008 - $455 billion budget deficit
2007 - $162 billion budget deficit
2006 - $248.2 billion budget deficit
2005 - $319 billion budget deficit
2004 - $412.7 billion budget deficit
2003 - $377.6 billion budget deficit
2002 - $157.8 billion budget deficit
2001 - $128.2 billion budget surplus
2000 - $236.2 billion budget surplus
1999 - $125.6 billion budget surplus
1998 - $69.3 billion budget surplus
1997 - $21.9 billion budget deficit
1996 - $107.4 billion budget deficit
1995 - $164 billion budget deficit
1994 - $203.2 billion budget deficit
1993 - $255.1 billion budget deficit
1992 - $290.3 billion budget deficit
1991 - $269.2 billion budget deficit
1990 - $221 billion budget deficit
1989 - $152.6 billion budget deficit
1988 - $155.2 billion budget deficit
1987 - $149.7 billion budget deficit
1986 - $221.2 billion budget deficit
1985 - $212.3 billion budget deficit
1984 - $185.4 billion budget deficit
1983 - $207.8 billion budget deficit
1982 - $128 billion budget deficit
1981 - $79 billion budget deficit
1980 - $73.8 billion budget deficit
1979 - $40.7 billion budget deficit
1978 - $59.2 billion budget deficit
1977 - $53.7 billion budget deficit
1976 - $73.7 billion budget deficit
1975 - $53.2 billion budget deficit
 1974 - $6.1 billion budget deficit
1973 - $14.9 billion budget deficit
1972 - $23.4 billion budget deficit
1971 - $23 billion budget deficit
1970 - $2.8 billion budget deficit
1969 - $3.2 billion budget surplus


very few good years and by the very nature of this going on and on and on inflation will occur.

BTW this is a bit old so the numbers from 2019 on are suspect. But are all in the hole.

{ Suddenly the whole idea of Bitcoins having limited coins to be mined seems interesting, doesn't it?}

If the FED'S might have to step in the system then they have to realize that, they have already lost their whole economic game them. FED's managing the liquidity is the last resort. Which does mean that, the system is flawed and not working.

*Shrinking the liquidity is of utmost importance*
Write now the reason why the whole system is in chaos is due to excessive money being printed. The Donald Trump's era, meant a lot of money being poured into the COVID-19 reliefs being provided to the people. The system did not manage to generate jobs at the end of the day whose negative effects were already seen during the strikes.

Right now they need a healthy economic growth and controlled liquidity.

{ Suddenly the whole idea of Bitcoins having limited coins to be mined seems interesting, doesn't it?}

That is certainly interesting news.

The fed has shrank the money supply a few times during its history. I'm not the most knowledgeable about economics or finance. But I do remember reading an essay written by former fed chairman Ben Bernanke on previous instances of the fed following that policy. It certainly made for interesting reading. Especially given the context of the current era. I would highly recommend anyone interested digging that essay up and reading it.

An interesting point here is, credit and liquidity may be needed to jump start economies post COVID and post supply chain issues. Should both be resolved. Shrinking the money supply could make it more difficult for credit and loans to be acquired. Which could have a negative impact on recovery and growth. There are other aspects to it, that are relevant.

So the fed will shrink the money supply

The fed QE will last long until 2022 but what then ?
Btw ecb still not stop QE
canada and usa are the first ones to stop QE
Just by looking at bond buying plan and QE i think europe economy will do much better then usa as they keep going longer with QE

Inflection will be at 13% for some years but it will back to 4% at the end of 2025

The Fed is in a catch-22 situation. On the one hand, the massive printing of money has caused not only inflation but an artificially doped growing economy. Withdrawing stimulus will cause this artificial growth to slow or at least decelerate. And the Fed wants neither, neither excessive inflation nor economic slowdown. The problem is that the doping of the economy is such that there seems to be no easy solution.

If the withdrawal of stimulus has too detrimental an effect on the economy, and let's remember that this is likely because of other added factors, such as rising energy prices, they will eventually have to go back and continue printing, but continuing to print will still lead to high inflation.

In short, the future looks bad, very bad. Maybe we can weather it better, because we have Bitcoin and other financial assets, but I hope that the coming crisis will not be like the one in 2008 or the Great Depression.

How do you think it will affecting our daily life.
And markets i think we will see more black swans and flash crashes.
If the fed will shrink the liqutity the question is will they make rates negative under zero again ?
Or thats it ? By the 2025-2030 we will be all in crypto and fed will not print any more money.
Who got crypto 10 years ago they are happy others are too late and have to play the rules of the first investors.
And by the 2022 tgey will be going to stop all the repo.

The fed is currently engaging in QE, and will likely continue doing so for at least another 9 months based on their current plan. They won’t raise interest rates until after QE is stopped (or at least until they stop purchasing additional bonds).

For the fed to remove liquidity, they will need to either raise short term interest rates, or be a net seller of bonds (selling a bond would include redeeming it at maturity and not purchasing an equivalent amount). It appears it will be a long time until either of these will happen.

As long as the fed is either adding liquidity, or not removing liquidity, we will see additional speculation in financial markets.

It has also been noted that there are no capital controls throughout the west (eg europe), so if the ECB is engaging in QE, it is the same as if the fed was engaging in QE.

It has been mentioned many times that this will happen. The FED should not keep the current level of liquidity as it will create a level of inflation difficult to fight. Still, the spending programme of JB needs financing, so the tampering may not be as strong as should be.

How does it affect everyday life... well for most people it means a contraction of the economy and possibly, as it is allied with a offer shock, a global problem in supply chains and problems with raw materials, it is obvious that will add to the burden of most people. The stocks will also lose value.