“They can’t let the balance shrink.”

The Federal Reserve continues to make headlines this year with its aggressive rate hikes. Another part of the strategy to deal with inflation is to shrink the balance sheet. They do this by, for example, buying new US government securities or selling debt securities.

Less than $300 billion

Since its peak, the Federal Reserve has yet to shrink its balance sheet by even $300 billion. Last week, $2 billion worth of assets were added to the balance sheet.

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The Federal Reserve tries to fight inflation by shrinking its balance sheet. Since June, the balance sheet has shrunk by $236 billion.

Therefore, whether the Federal Reserve will succeed in solving this problem remains questionable. It is likely that the money printers will need to be restarted in the long term, as the economy cannot continue to operate at the current relatively high interest rates. The US economy has been addicted to low interest rates in recent years and the coming months should show what higher interest rates do to businesses.

The ECB is not doing well

Incidentally, the balance sheet of the European Central Bank is in no better shape than that of the US Federal Reserve. In fact, you could say that things are even worse in the Eurozone than in the US, as evidenced by the performance of the Euro against the US Dollar.

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“The ECB balance sheet is recording a new all-time high. Even as the euro zone experiences a record high in inflation, Lagarde is running the money printers at full capacity,” Holger Schaepitz said of the ECB in June 2022.

With those figures, the ECB’s balance sheet represents roughly 82.4 percent of the eurozone’s gross domestic product (GDP). The Federal Reserve Bank’s share is 36.6 percent, the Bank of England’s 39.6 percent, and the Bank of Japan’s 136.3 percent.

Interest rates, at least in the Eurozone, will need to come down again to keep things going. Especially thanks to weaker brothers like Italy, it seems 100 percent certain that they will not get out of debt without help. In the long run, that can only be positive for Bitcoin.