The Risks in Central-Bank Balance Sheets Are Clear

Central banks are expanding.

Photographer: David Paul Morris/Getty Images

There has so been much attention paid to the Federal Reserve recently in terms of what policy makers are saying and doing that it’s time to correct some observations.

At its June policy meeting, the Fed announced it would begin shrinking its balance sheet by $10 billion a month. And it has, with assets dropping to $4.439 trillion from $4.476 trillion. But that’s de minimus when you consider that its assets have grown from less than $1 trillion back in 2008.

Put another way, “normalization” has been a much-vaunted word used by the members of the Fed, but nothing of the sort has occurred. We are being bamboozled. Perhaps it will occur at some point, but it has not happened yet. “Flatlining” and “exiting” are not the same propositions.