Whenever this balance sheet chart shows up, MMT boosters descend to explain why the Fed's balance sheet doesn't matter. It's interest we owe ourselves. Nobody in the real economy looks at that balance sheet when making actual financial decisions, they claim.
I think that misses the point. The point is that since the last financial crisis, the balance sheet has on net expanded. By a lot. When the current crisis hit, the balance sheet shot up from an already elevated level.
To put it another way, consider the size of the balance sheet relative to GDP (~$24 trillion):
https://fred.stlouisfed.org/series/GDP
At the current level, the balance sheet is about 25% of GDP. There's every reason to believe the Fed is far from done. It's bailouts as far as the eye can see at the moment. And those bailouts will be monetized by the Fed. We can't possibly pay for them at the current value of the dollar. Ever.
To the MMT boosters, what happens when the balance sheet approaches 1x GDP? 2x? 5x?
Nobody knows because this experiment has never been tried before. The reserve currency printer is also a net debtor. It runs very high, structural deficits with no end in sight. The currency is completely decoupled from gold, and as recent history shows, possibly industrially-critical commodities like oil.
I'd be very curious to hear from the MMT proponents on what signals they's look for that the Fed's balance sheet actually does matter in the real economy. Things that can only be explained by problems stemming from the size of that balance sheet. Problems whose only cure is a massive reduction in that balance sheet.
Of course, the balance sheet isn't going anywhere. Nor are deficits. When faced with such situations in the past, the answer has been devaluation.
The US did that back in the 70s when it closed the gold window. It will happen again. What the MMT proponents I've seen seem to ignore is what form that devaluation will take given the highly unusual circumstances around which it will be occurring.