Easy Money In A World Of Hollandes

Back in 2008 when the banking system in the United States was in danger of melting down and the economy was sliding into recession, few tools were available to policy makers to prevent a financial catastrophe.


During that fateful period in mid-September, Hank Paulson, Tim Geithner and Ben Bernanke made a series of decisions that laid the foundation for the strengthening of the banking system and the recovery of the economy.

The balance sheet of the Federal Reserve, which had been stable below $1 trillion for some time, swelled sharply to $2.4 trillion as various support programs were implemented. Money kept flowing to enable the economy to grow modestly, and today the Federal Reserve balance sheet has assets of almost $3 trillion, as shown in the chart below. Whereas the balance sheet of the Fed consisted almost entirely of US Treasury securities when it was $1 trillion, today the balance sheet holds substantial amounts of mortgage-related and other lesser-quality securities and financial instruments.