| As I pointed out in my last post on inflation, the expansion of Fed balance sheet assets has been largely offset on the liability side of its balance sheet by excess reserves held by banks. Those reserves are assets to the banks and liabilities to the Fed. They are excess reserves because they exceed the amount of reserves Fed regulations require to back the banks deposit liabilities.There is no cost to taxpayers to leave the enlarged balance sheet approximately as it is and focus policy on future needs. Actually, the enlarged balance sheet has been a boon to taxpayers since it has increased Fed profits that are turned over to the Treasury s general fund. Shrinking the balance sheet would reduce those supplements to tax revenues in the future |
