Two Trillion and Counting: The Fed and the Magma Chart

The "magma chart” is the name that, according to a post on the New York Times’s Economix blog, is being given to a chart on the Web site of the Federal Reserve Bank of Cleveland that shows the Federal Reserve’s balance sheet growing to about $2 trillion from less than $1 trillion before the economic crisis.

The name probably refers to the shape of the chart, which looks something like a wall of magma or lava flowing downhill (President Obama, with his Hawaii background, should be able to relate). The striations indicating the various asset classes also look a little like one of those images in an Earth Science textbook showing the layers of the earth’s crust and core.

But so long as we are talking about molten rock, to me the real significance of the chart (along with the downward stock index charts since the Fed’s statement Tuesday afternoon) is the potentially volcanic political impact. Think of it -- $2 trillion in government money, more than the entire annual spending of the entire federal government in 2001 -- thoroughly insulated from the control of elected officials. The Fed is not funded by Congress, and its governors are not elected by the public. Rather, they are appointed for 14-year terms, during which they "may not be removed from office for their policy views." The governors almost all have advanced degrees from fancy colleges; Chairman Ben Bernanke is a summa cum laude graduate of Harvard who got his Ph.D. at MIT and was a professor at Princeton (along with Nobel laureate Paul Krugman).