If you are an accountant, you might be familiar with the
word “balance sheet.” The US Federal Reserve is a treasury for the US reserves
where all the assets are stored. It was established on December 23rd, 1913,
under the Federal Reserve Act in which the central bank purchases assets that
are meant for the long-term.
The federal reserve balance sheet of a country as big as the US is an interesting document. Not only that, but there are also many strategies in place to stabilize the economy if things go sideways in the country. An exemplary strategy is an unconventional but effective strategy called the quantitative easing strategy, which was implicated during The Great Depression in 2008 to stabilize the country’s economy.
Today, when the world is at the mercy of a pandemic known as
COVID-19 and the world economy is in shambles, the Feds are once again relying
on the quantitative strategy to make sure that the country doesn’t go into
critical financial crisis. Despite being used twelve years ago, the
quantitative strategy is still deemed a reasonably new approach because of the
lack of data.
The way the quantitative strategy works is that at the time
of crisis, the central bank increases the money supply to prevent the economy
from falling apart while keeping the interest rates at the very minimum. The
Feds started to invest the money by purchasing assets in large quantities that
would serve a long-term purpose so that they can cut off the supply from these
long-term assets and increase the money supply.
Infographic by: Visualcapitalist.com
Infographic by: Visualcapitalist.com
