“So when is 4 trillion dollar bonfire when all that money disappears?”
Yep.
All the Fed will do is very gradually swap its bond stockpile for dollars.
Bonds unlike dollars cannot be used as reserves as a base for bank loans. So in theory and classically, the fed reversing its prior policy and reducing money by replacing it with bonds is contractionary.
Now, however, the banking system isn’t short of reserves, willing but unable to make more loans.
Moreover, financial innovations has greatly reduced the significance of the difference between bonds and dollars. That’s why the Fed’s huge increase in its balance sheet didn’t much affect the real economy.
