- U.S Federal Reserve chairman Jerome Powell has indicated that he plans to shrink the balance sheet down to zero over the course of the next couple of years.
- The Federal Reserve uses interest rates and money operations to manipulate the financial system to regulate the flow of capital, the cost of capital, and the wider world.
- From 2008 to two years ago, the Federal Reserve printed currency and used it to purchase Bonds on the second Market.
- The economy is on sounder footing with record low unemployment levels and moderate to strong growth for three years in a row.
- As a result, the Federal Reserve is getting out of this business and getting back to normal at three to four times the speed they built the balance sheet up.
- Typically, this should mean slower economic growth and less funding for emerging technologies and projects that don’t make sense from a cost/benefit analysis.
- The economy should be more efficient overall, but this is not necessarily good for each individual piece.
- The Federal Reserve is not done raising rates, and is expected to go up another full percentage point (or more).
- The Baby Boomers are retiring, which means their money is rapidly draining away from the system, and at the same time the Federal Reserve is tightening policy.
- Over the next two to three years, this will result in a global reduction in available capital of at least a third, and a similar number of people employed in the financial sector in the U.S.
Published February 16, 2023
Visit YouTube to read Peter Zeihan’s original vlog Peter Zeihan – Why the Fed Is Shrinking the Balance Sheet
