[jyl]

I'm not sure what the right size for the Fed's balance sheet is. I've read that the amount of money has grown greatly so the Fed's balance sheet can be larger than it used to be.

I'm also not sure that it makes a difference where the bs stabilizes. If the Fed buys $1 of a newly issued Treasury or agency bond, while at the same time collecting $1 of principal as an older bond matures, nothing really changes. No additional money is pumped into or removed from the economy.

In other words, it is the change in the Fed bs size, not the size of the bs, that really matters.

(Within limits, which we're probably not near.)

What's the right level for rates? I don't know how to decide that except by looking at the effect of rates.

Rates so low that they encourage people and companies (and governments) to accumulate excess debt burdens are too low. Rates so low that they encourage diverting capital to paper assets (stocks) and debt-dependent activities (m&a, share buybacks) instead of to productive investment (capex, hiring, growth) are too low. Rates so low that the yield curve inverts (which makes banks stop lending, since deposits cost them more than loans generate) are too low. Rates so low that people who should be in low risk investments (savers) are forced to chase risky investments (become speculators) are too low.

I think we've seen some of those conditions.

Rates so high...you can fill in the list.

I don't think we've seen much of that, except for a brief 20% drop in stock prices (investor tantrum). That's not nothing, of course, but bull markets have to end sometime.