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Wed December 18, 2013
A Tiny Taper, In 2 Graphs
In the past five years, the Federal Reserve has created roughly $3 trillion out of thin air.
The Fed uses the money it creates out of thin air to buy bonds. The idea is to drive down interest rates, which encourages people and businesses to borrow and spend money. It's called quantitative easing.
The big news today is that the Fed will soon start creating slightly less money out of thin air every month. Starting in Januray, the central bank will go from creating $85 billion every month to creating $75 billion a month.
In the context of the roughly $3 trillion the Fed has already created, this change is vanishingly small.
In fact, the taper is so small relative to the Fed's balance sheet that you wouldn't even be able to see it on the graph above. So here's a zoomed-in version (where they Y axis doesn't go to zero).