It Shrinks?

Jerry: Do women know about shrinkage?
Elaine: What do you mean like laundry?
Jerry: No, like when a man goes swimming afterwards.
Elaine: It shrinks?
Jerry: Like a frightened turtle!
Elaine: Why does it shrink?
George Costanza: It just does.
Elaine: I don't know how you guys walk around with those things.
George Costanza: I was in the pool! I WAS IN THE POOL!

("Seinfeld", 1994, The Hamptons)


OK. Enough with Seinfeld. What's the point of the reference?

It's the Fed. And it's the economy. And it's deflationary.

What's the problem?

Not enough private loan demand, as demonstrated in A Look Inside Fed’s Balance Sheet — 5/28/09 Update:

The Fed’s balance sheet shrunk in the latest week to $2.064 trillion from $2.165 trillion. While the central bank boosted its holdings of Treasurys and federal agency debt, the increases were more than offset by declines in direct bank lending and liquidity swaps with foreign central banks. The TALF and commercial paper facilities also shrunk in the latest week. (Emph. added. And would any English majors agree that the WSJ meant "shrank" rather than "shrunk"?)

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