Submitted by Taps Coogan on the 27th of March 2020 to The Sounding Line.

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The Federal Reserve’s balance sheet has rocketed above $5 trillion for the first in history as it accelerates its largest liquidity injection ever.

As of Wednesday the 25th of March, the Fed’s balance sheet stood at $5.25 trillion, up roughly $580 billion in just one week, up $940 billion in the last two weeks, and up nearly $1.5 trillion since repo markets first blew out in September 2019.

Over the last week, the Fed has bought a whooping $337 billion of treasuries and $17 billion of mortgage backed securities (plus much more that haven’t settled yet). The Fed also made $80 billion in additional loans through its alphabet soup of special purpose vehicles which are busy buying corporate bonds and generally extending credit throughout Wall Street. It also made roughly $206 billion in central bank currency swaps.

As a point of comparison, during the worst part of the Global Financial Crisis, when the US had already been in deep recession for nearly a year and every large financial institution in the US was being bailed out, it took the Fed three months to grow its balance sheet by ‘only’ about $1.3 trillion.

How the Fed plans to walk back all this liquidity when the Coronavirus crisis eventually passes is a complete mystery. This is particularly true considering that it failed to meaningfully walk back the liquidity that it injected after the last crisis and it had a decade to figure it out.

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