Via GaveKal:
Here is an anecdote for the “no-inflation” file: in 1998, LTCM, a hedge fund with US$4.7bn in assets under management hit the wall following poor trades on Danish mortgage bonds, Russian government debt and an unfortunate pairs trade on the UK-Dutch listings of Shell. LTCM’s implosion nearly took down the global financial system. The New York Federal Reserve had to twist the arms of Wall Street’s biggest banks to form a consortium and to unwind LTCM’s hefty derivatives book. The Federal Reserve cut interest rates—but its balance sheet barely grew.
The situation is different today. The Fed’s balance sheet grew by US$141bn in December, as opposed to growth of US$19bn in December 1998. For 2020 as a whole, the Fed grew its balance sheet by US$3.2trn, compared with an expansion of US$30bn for the whole of 1998. At the end of 2020, the Fed’s balance sheet was almost 15 times as large as it was at the end of 1998.