Is the Federal Reserve sustainable?

Is the Federal Reserve sustainable?

Posted by Liam McDermott

Updated: Feb 9, 2021

GDP and Monetary Base

The Monetary Base and the GDP have historically been 98% correlated reflecting the reciprocal relationship of money and economic expansion.

According to the Federal Reserve, in the 12 years preceding the financial crisis the GDP expanded 46%, while Monetary Base increased 47%.

In the 12 years following the crisis, the GDP expanded 31% while the Monetary Base increased more than 600%.

Where did the money go?

In 2008 the Federal Reserve began purchasing $1T a year in US Treasuries and bank debt. 

The Federal Reserve currently holds $7.4T in total assets on their balance sheet.

The money created by the Federal Reserve is apportioned to 7 primary dealer banks domiciled in the US and 17 overseas.

The Federal Reserve in on pace to expand the monetary base to $32T by 2032.

*Bloomberg sued The Federal Reserve in 2011 and uncovered a $7.7T secret bank bailout not represented here.

Average inflation:

  • 1996-2008 : 1.77%
  • 2009-2020 : 2.69%

Despite the 600% increase in the Monetary Base, Inflation has increased less than 1% on average since 2008. This indicates most of the money did not enter into circulation and has stayed within the primary dealer banks.

Liam McDermott

Data science fellow with background in institutional trading.

View all articles

Topics from this blog: R Student Works R Shiny

Interested in becoming a Data Scientist?

Get Customized Course Recommendations In Under a Minute