There are few entertaining economists, and fewer still work on Wall Street. Willem Buiter, the chief economist of Citigroup, is one of them. He is not only entertaining, but also outspoken—and his analysis of key economic trends and themes is second to none.
The Epoch Times spoke with Buiter about Federal Reserve (Fed) quantitative tightening and its impact on credit markets as well as about speculation in the stock market.
The Epoch Times: What do you make of the Fed’s goal to shrink its balance sheet?
Willem Buiter: There are political reasons to shrink the size of the balance sheet from the $4 trillion to $4.5 trillion that it is now, so roughly 20 percent share of GDP, back to something like $2.5 trillion and thereabouts. It started off at around $900 billion in 2006 before the crisis.
So even the new steady state balance sheet is going to be a lot larger than the old one. And I think there’s no reason why the Fed cannot live comfortably with the balance sheet of the current size. But clearly, it does not want, under normal economic conditions, to be actively engaged in credit subsidies, by first purchasing and then holding on to mortgage backed securities, right? It is not the task of the Fed to subsidize those who borrow to purchase property and that’s effectively what they’re doing.
