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“By the Time its New Steps Are Done, the Fed’s Balance Sheet Will Reach $4.5 Trillion, or About a Third of GDP”

George Washington’s Blog [1]
Thursday, March 19, 2009

Paul Krugman has been calling for more government intervention into the economy than just about anyone else.

Krugman is calling for stimulus in the US and European Union of 4% of GDP [2]:

“My back of the envelope says on both sides of the Atlantic we should be having a stimulus that peaks at 4 percent of GDP annually …. The United States is not doing enough to fight the crisis and Europe is doing a bit less than half as much as the United States.

(ARTICLE CONTINUES BELOW)

[3]

However, as noted in the Economist [4]:

By the time its new steps are done, the Fed’s balance sheet will reach $4.5 trillion, or about a third of GDP, up from less than $1 trillion a year ago, Capital Economics estimates.

I understand that dollars spent on stimulus and the size of the Fed’s balance sheet do not necessarily have an exact correspondence. But the size of the Fed’s balance sheet does give an indication of the massive scale of Bernanke’s tinkering.