Central-bank balance sheets are expanding to record levels amid their latest buying spree, raising questions about how big they can get and whether those assets can ever be sold back to markets.
Policy makers didn’t have much luck paring down much smaller portfolios in the decade since the financial crisis. And now they have to bankroll a coronavirus economy that’s putting government budgets under unprecedented strain and threatening to drive companies everywhere out of business.
“The amounts being purchased are enormous, and it just tells you how much support is needed when the economy is closed down,” said Torsten Slok, Deutsche Bank’s chief economist. “Just have a look at how long it took to unwind from the financial crisis of 2008 and 2009. Now we are adding at a pace that is multiples faster.”
Central banks in Group of Seven countries purchased $1.4 trillion of financial assets in March, nearly five times as much as the previous monthly record set in April 2009, according to a Bloomberg Economics analysis. Morgan Stanley analysts estimate that the Federal Reserve, European Central Bank, Bank of Japan and Bank of England will expand their balance sheets by a cumulative $6.8 trillion when all is said and done.
The Fed has led the charge, offering to buy unlimited amounts of U.S. government bonds and mortgage-backed securities — and lend trillions more to corporations and municipalities through temporary purchases of their obligations — as global investors seek to unwind years worth of accumulated leverage in their own portfolios. In the week through April 15, it expanded its balance sheet at a pace of about $41 billion per day.
Central bankers in the euro area, Japan and the U.K. — old hands at so-called quantitative easing programs by now — have all ramped up buying, while those in Canada, New Zealand and Australia have embarked on large-scale purchases for the first time, joining Sweden among smaller economies to do so. There’s even talk that some emerging markets like Thailand may get in on the game.
“They’re all moving in the same direction,” said Aditya Bhave, an economist at Bank of America in New York. “At some point, unconventional easing stops being unconventional.” – READ MORE
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