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Fed Balance Sheet Hits New Record At $2.55 Trillion As Bank Reserves Hit $1.3 Trillion All Time High

Tyler Durden's picture





 

The Fed's insatiable desire to redo all the debt monetization mistakes of the Weimar republic continues. This week, the Fed's balance sheet hit a fresh all time high of $2.55 trillion, primarily as a function of increasing Treasury holdings. Not adding today's $7.2 billion POMO to the total holdings, the Fed's total Treasury holdings increased by $22.8 billion W/W, even as MBS posted their first decline in two weeks now that repurchases have materially slowed down as mortgage rates are substantially higher than at the start of QE Lite. This means that net of today's monetization, the Fed owns 7.2% more Treasurys than even the adjusted Chinese holdings of $1.16 trillion. Another key observation: excess reserves which have surged in recent weeks due to the unwind of the SFP program and due to the delay in liability catch up with Fed assets, increased by another $6 billion to a record $1,296 billion. And, naturally, only a hedge fund as big as the Fed would list $116.1 billion in other assets.

Total Fed balance sheet:

Total Reserves versus changing assets:

Total change in marketable assets since the start of QE Lite:

And the top holders of US debt:

 


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Thu, 03/03/2011 - 18:33 | Link to Comment reader2010
reader2010's picture

We are fucked, and that's for sure.

Thu, 03/03/2011 - 18:41 | Link to Comment ghostfaceinvestah
ghostfaceinvestah's picture

This ain't gonna end well, that is for sure.

Zimbabwe or USA 1930.  I would say "choose your poison", but it is being chosen for us.

Thu, 03/03/2011 - 22:50 | Link to Comment reader2010
reader2010's picture

Can I still manage to escape this shit hole before it gets too late?

Thu, 03/03/2011 - 18:34 | Link to Comment Rainman
Rainman's picture

Uh-oh.....$116B in other assets might be all the gold they gots.

Thu, 03/03/2011 - 19:35 | Link to Comment smlbizman
smlbizman's picture

i heard chatter to day on cnbc, yeah i know, the guy said we have gold at ft. knx, wst. pnt. at the feds vault and it is so great news that they only consider it at 42. ++ and not 1400 an onunce so shit were rich bitch, than the guy said they could sell it for 350 bil. and pay some bills or spend...at this point i put my gun on the roof of my mouth...   

Thu, 03/03/2011 - 19:49 | Link to Comment RockyRacoon
RockyRacoon's picture

Funny how neither of those tards suggested actually selling the gold hoard, for differing reasons, of course.   I think they both know why.

Thu, 03/03/2011 - 22:00 | Link to Comment dark pools of soros
dark pools of soros's picture

how much paper silver did they buy from Blythe??

Thu, 03/03/2011 - 22:04 | Link to Comment jesse livermoore
jesse livermoore's picture

I was watching that segment, the first guy suggested selling some because it just sits around and does nothing and it wasn,t like we going back on the gold standard anytime soon.  he even china would buy it right up!!!!!!!!!!!!

Thu, 03/03/2011 - 18:37 | Link to Comment Judge Judy Scheinlok
Judge Judy Scheinlok's picture

China and Japan are fucked!

So is the FED but who gives a shit!

You really have to appreciate this.
http://www.zerohedge.com/sites/default/files/images/user5/imageroot/von%...

So what exactly was Madoff guilty of?

Thu, 03/03/2011 - 18:43 | Link to Comment plocequ1
plocequ1's picture

Exactly. Who gives a fuck? What can one do except say to yourself  who gives a fuck? We are doomed.

Thu, 03/03/2011 - 18:46 | Link to Comment Judge Judy Scheinlok
Judge Judy Scheinlok's picture

What can one do? Prepare.

Thu, 03/03/2011 - 19:49 | Link to Comment RockyRacoon
RockyRacoon's picture

Check.   I'm ready to rock n roll.

BTW, has anyone ever told you that you're butt-effin-ugly?

Thu, 03/03/2011 - 19:55 | Link to Comment Judge Judy Scheinlok
Judge Judy Scheinlok's picture

Solicitation is a crime.

"I'm here because I'm smart, not because I'm young and gorgeous!"

Thu, 03/03/2011 - 21:07 | Link to Comment RockyRacoon
RockyRacoon's picture

I've used worse pick-up lines and been successful.   Sad that you saw past my ruse.

Thu, 03/03/2011 - 20:00 | Link to Comment 6_7_42
6_7_42's picture

++1

Thu, 03/03/2011 - 18:47 | Link to Comment asdasmos
asdasmos's picture

"So what exactly was Madoff guilty of?"

 

Trying to beat the government.

Thu, 03/03/2011 - 19:05 | Link to Comment Burnbright
Burnbright's picture

Trying to beat the government.

At their own game, which is why he lost.

Thu, 03/03/2011 - 22:02 | Link to Comment dark pools of soros
dark pools of soros's picture

he didn't owe enough to Goldman

Thu, 03/03/2011 - 19:09 | Link to Comment Judge Judy Scheinlok
Judge Judy Scheinlok's picture

Yes, at it's own game. LoL. I think it has more to do with who it was in his target audience.

A jew steals from you? Oh hush, hush everything is going to be alright. We will spread the cost of the theft across all taxpayers. No worries.

A jew gets stolen from and it's straight to jail, even if you are a jew.

Thu, 03/03/2011 - 22:02 | Link to Comment dark pools of soros
dark pools of soros's picture

+1 shekel

Thu, 03/03/2011 - 18:36 | Link to Comment John Law Lives
John Law Lives's picture

Ponzi economy!

Thu, 03/03/2011 - 18:38 | Link to Comment NewThor
NewThor's picture

Soon Bernanke and The Federal Banksterati will have the whole world

on their balance sheet. Gratz Earth 2011. All these things must pass.

Thu, 03/03/2011 - 18:51 | Link to Comment NotApplicable
NotApplicable's picture

I just wonder how long it will take and what version of QE we will be up to by then.

Thu, 03/03/2011 - 18:39 | Link to Comment the rookie cynic
the rookie cynic's picture

Every time ZH posts these FED graphs all I can see is the invasion and overthrow of Mainstreet by the global elite bankers from hell. The FED is the biggest Trojan effing horse of all time. What's the problem? Wallstreet is the problem. "The rot must be purged." http://therookiecynic.wordpress.com/2011/01/11/greenspan-loved-bubble-gu...

Thu, 03/03/2011 - 18:42 | Link to Comment ghostfaceinvestah
ghostfaceinvestah's picture

von Havenstein had nothing on Bernanke.  Benocide is in Gideon Gono territory.

Thu, 03/03/2011 - 18:43 | Link to Comment NewThor
NewThor's picture

When TSHTF where do these guys think they will be safe?

In their pitchfork and Nibiru safe bunkers with a life time of DVD's 

of old Ronal Reagan speeches?

Thu, 03/03/2011 - 18:48 | Link to Comment Caviar Emptor
Caviar Emptor's picture

There's a secret compartment in the Reagan mausoleum

Thu, 03/03/2011 - 22:05 | Link to Comment dark pools of soros
dark pools of soros's picture

watching netflix on their ipads on venus...   they tell us all about mars but they already have cities on venus

Thu, 03/03/2011 - 18:51 | Link to Comment TruthInSunshine
TruthInSunshine's picture

I'd dare hazard a speculative bet that whatever portion of the Fed's balance sheet is comprised of MBS & CDS, that portion is worth, at best, 50%, and probably closer to 35%, of whatever the Fed has it valued at 'officially.'

Thu, 03/03/2011 - 19:02 | Link to Comment Judge Judy Scheinlok
Judge Judy Scheinlok's picture

Less and less as each day passes.

But I have a question for those with a real estate background. Currently Freddie and Fannie are mandating in about 90% of their salable properties that you can only buy if the home is going to be your primary residence for at least a year. Else a $10,000 fine.

This puts an large cap on speculation/flipping. No?

If you were sitting on such a large garbage barge of moldy, blighted, overvalue RE, wouldn't you want to dump it onto whoever will pay the highest price? Regardless of how many other properties this entity has purchased?

There is something going on and it smells like 3 month old milk.

Thu, 03/03/2011 - 19:07 | Link to Comment TruthInSunshine
TruthInSunshine's picture

They have cracked the whip even harder than that, by requiring higher FICO scores, more realistic appraisals (appraisals for mortgages are actually hard to get, in some areas, now), and a higher % down on any FHA-backed mortgage (which I do believe is well over 84% of now issued mortgages).

The reason they are trapped, though, is the same reason many banks and other repositories of real estate (commercial, industrial, office and residential) are trapped: If they dump the crap they have in their coffers onto the market now, they further depress prices, which complicates their problems, as much of their 'solvency' is tied to fantasy valuations.

True mark-to-market would cause a tsunami dwarfing the S&L crisis.

Fri, 03/04/2011 - 05:11 | Link to Comment StychoKiller
StychoKiller's picture

FRNs, FRNs everywhere and not a debtor to lend them to!  Apologies to S.T. Coleridge!

Fri, 03/04/2011 - 08:18 | Link to Comment Withdrawn Sanction
Withdrawn Sanction's picture

Judge, seems like it would depend on the price.  If it were low enough, the $10K fine would just be a transactions tax.  Painful yes, but not fatal to the deal...if the price is right.

 

PS...what DO you think is going on

Thu, 03/03/2011 - 19:41 | Link to Comment prophet_banker
prophet_banker's picture

right, we'd be fools to think THE FEDERAL RESERVE doesn't engage in off balance sheet transactions for leverage like the rest of the banks....that 1,600trillion dollar market has no transparency

Thu, 03/03/2011 - 18:47 | Link to Comment Caviar Emptor
Caviar Emptor's picture

 

Ben's introduction to his next Humphrey Hawkins speech: 

 

There is a fifth dimension beyond that which is known to man. It is a dimension as vast as space and as timeless as infinity. This is the dimension known as The Bernank Zone. Where not only can the Fed own everything, it can own twice everything

 

Thu, 03/03/2011 - 20:01 | Link to Comment 6_7_42
6_7_42's picture

LOL-f'ing-LOL

Thu, 03/03/2011 - 18:52 | Link to Comment Spalding_Smailes
Spalding_Smailes's picture

 

 

I prefer to define inflation and deflation in terms of changes in the volume of money only. While definitions can be chosen as a matter of preference, the laws of cause and effect do not depend on the choice of definitions. It is the volume of money alone, not the volume of money and credit, that is the primary determinant of prices generally. By focusing on money I do not deny that a credit contraction has important macroeconomic consequences, nor do I deny that fractional-reserve banking makes money and credit interdependent.

The key point is that prices are formed with money because money is the final means of payment for goods, while credit is not. The value of each unit of money rises only when there is less money or more demand for existing money. A change in the volume of credit will affect relative prices but it will not affect the overall value of each money unit in a systematic way.

Lumping together money and credit as if they were the same thing leads Prechter to deeply confused and crankish writings, such as here, in The Fed's Presumed Inflation — Mostly a Mirage. In this piece, he makes a spurious distinction between the monetization of new government debt and the monetization of existing government debt. To summarize Prechter's point, when the public's holding of Treasury debt is replaced by holdings of dollars (which, to further confuse matters, he calls "IOU Dollars"), no net inflation has occurred because the volume of money plus credit has not changed.

This is plain wrong. As noted above, Prechter is free to define inflation as a growth in money plus credit, but the economics of the money supply and the credit supply are not the same. Aggregating money and credit obscures the difference. Credit is not money. Money can be spent, debt cannot. Debt investors hold a claim on future money flows, while money holders hold money. The total of money-plus-credit has not changed in Prechter's scenario, but the supply of money has increased, while the supply of debt has decreased by the same amount. Whether or not the bank multiplies more loans on top of the new deposits, the supply of spendable media has increased.

Furthermore — contra Prechter — from a monetary standpoint there is no difference between the monetization of new or existing debt. In either case, money is created out of nothing by the central bank. In the former case, a corresponding amount of Treasuries is removed from the banks' balance sheets and in the latter case it is not. But the quantity of money, which is the primary determinant of the value of each unit, increases in the same way in either case.


Duration and interest are different for cash and treasuries, but they are not the fundamental differences. The fundamental difference between them is that money is accepted as a final means of payment for goods and Treasuries are not. This is why Treasuries are not cash.

Government debt is a liability that requires the payment of money proper as interest and upon maturity. Actual money is not a liability in the same sense. Fractional-reserve banking makes this more complicated because the money supply consists of currency and bank liabilities that are backed by bank assets. But these bank liabilities have the unique property that they are accepted as payment for goods and services — while other financial liabilities such as Treasuries are not.

 

http://www.marketoracle.co.uk

 

 

Thu, 03/03/2011 - 19:01 | Link to Comment Burnbright
Burnbright's picture

Not really sure what your point is but to clarify there really is no difference between credit and reserves. Although credit is created along with debt the bank doesn't suffer a loss on loaning credit regardless if any portion of princple or interest is paid back. If you don't believe me read modern money mechanics written by the chicago federal reserve.

Fri, 03/04/2011 - 03:35 | Link to Comment Double down
Double down's picture

Wonder what Keen's retort would be?

Fri, 03/04/2011 - 08:39 | Link to Comment Withdrawn Sanction
Withdrawn Sanction's picture

True, credit is not money (though all money, including currency is a form of credit...as in a "note").  Credit is a form of purchasing power such as a mortgage allows one to "purchase" a house, or a car loan to purchase a car.  Indeed, the vast majority of things we buy we do so w/one form or other of credit.

Credit (as in T-Bills) can also represent a form of potential purchasing power and as backing for other forms of more liquid money.  When that potential is converted into actual purchasing power is where problems can arise.

As w/the other poster, not sure what the point of your "post" is, other than to take a swipe at Prechter.  While I hold no book for RP, I do note and find it interesting that two trolls have gratuitously slammed him in the last day or so, and now this UK marketoracle piece makes 3.  Very interesting indeed.

 

PS Smailes, lifting that much of another's work is not fair use, even with a citation.  It's theft.

Thu, 03/03/2011 - 18:50 | Link to Comment NotApplicable
NotApplicable's picture

+ 2.55T

Thu, 03/03/2011 - 19:52 | Link to Comment RockyRacoon
RockyRacoon's picture

Sweet.

Thu, 03/03/2011 - 18:47 | Link to Comment Burnbright
Burnbright's picture

And people still think deflation is going to happen. Truly unbelievable based on those graphs.

Thu, 03/03/2011 - 19:43 | Link to Comment prophet_banker
prophet_banker's picture

and yet HOUSES have not hit their bottom yet, i'd bet 2012

Thu, 03/03/2011 - 18:54 | Link to Comment km4
km4's picture

David Stockman warned us months ago

"This is not 1981, this is not 'morning again' in America, we've drifted now for 30 years. Stockman continued, "In that 30 years, the deficit has gone up 14x, but our economy is only four times larger. We're losing the race, and we're now becoming the banana republic [of] finance, printing -- the Fed, these mad men who are out of control at the Fed are printing new money equal to 100 percent of the debt that we're issuing each month. This will not end well. It's going to end in a disaster."

 

Thu, 03/03/2011 - 18:57 | Link to Comment FunkyMonkeyBoy
FunkyMonkeyBoy's picture

He who owns the debt has the control.

Creditor = the FED.

Debtor = the U.S. docile populous from here to eternity.

Now back to work bitches, the Bernank doesn't like slackers, you gotta pay the interest on that un-repayable debt created from money printed out of fresh air.

Thu, 03/03/2011 - 19:22 | Link to Comment Judge Judy Scheinlok
Judge Judy Scheinlok's picture

And don't forget to brush 5x a day with fluoridated toothpaste! Bitchez!

Or you will look like this. No one will love you and you will have zero opportunities in the land of opportunities!

http://seasweetie.files.wordpress.com/2010/03/rotten-teeth.jpg

Thu, 03/03/2011 - 19:55 | Link to Comment RockyRacoon
RockyRacoon's picture

Before picture, eh?  Now show us your after picture.

Thu, 03/03/2011 - 20:18 | Link to Comment Judge Judy Scheinlok
Judge Judy Scheinlok's picture

Real after picture(video):

http://v.ku6.com/show/UvnXpjG_VVZcbL2l.html

Prepare yourself for the real world Rocky.

Thu, 03/03/2011 - 21:14 | Link to Comment RockyRacoon
RockyRacoon's picture

You have your revenge.   I watched a Japanese video try to load for a few minutes of my precious time before moving on.   You win!

Thu, 03/03/2011 - 22:49 | Link to Comment Judge Judy Scheinlok
Judge Judy Scheinlok's picture

Chinese. One of these days you should upgrade from dial-up.

Your lack of patience will be your demise, there is a lot to learn out there.

~Judge Judy

Thu, 03/03/2011 - 22:56 | Link to Comment RockyRacoon
RockyRacoon's picture

I have DSL and it was the site you pustulous hag!  Obviously, my ability to reply to your inane comments proves that I am eminently patient.

Thu, 03/03/2011 - 18:59 | Link to Comment TruthInSunshine
TruthInSunshine's picture

No one talks about the hidden losses that still exist on the bank and financial institution ledgers, anymore.

Bernanke has sought to give a massive liquidity pillow and TIME, in order to allow as ma ny of the banks and financial institutions to unwind those losses without becoming insolvent.

The problem that Bernanke has is that the fundamentals of the economy are terrible, and could deteriorate even further, given the lack of any real organic growth and vibrancy, and that the traditional model of profit for banking is broken and dead on the roadside.

There is but one solution to our economic pain, but no has been able to provide the magic elixir to provide it:

 

J-O-B-S

 

It's my contention that by deeming deflation as a fundamentally 'bad' force, Bernanke has erred badly.

Deflation would allow a reset of equilibrium of wages and income to cost of goods and services, to the point that new activity would be created.

Stemming deflation, let alone inviting inflation (inflation so far in 'pockets,' I might add, in a speculative manner that acts as a further tax), is simply thwarting any real recovery.

Someone should let Bernanke know that cirumcunstances now are not as they were in 1933, and his riff on history and the Great Depression is not the best source to draw from when attempting to provide any solutions to what ails us now.

Thu, 03/03/2011 - 19:54 | Link to Comment Cdad
Cdad's picture

Well said, brother truth.

Capital is not forming, nor will it form, under these circumstances.  Forget the difficulties of getting a mortgage...who would want to buy a house now?  With everything going on, everyone a pink slip away from oblivion, and the cost of living skyrocketing...how does Ben Bernanke think capital can form under these circumstances?  IT WON'T.

Except for Ben Bernanke capital, of course.

Oh, he has done massive damage to this economy...to the very system that we all knew and understood as capitalism.  And it will end very badly for every last one of us.

Will someone please take a fire hose to Ben's office first thing in the morning...pretty please?

additional:

This is to say nothing of the fact that title on land in America has been broken...by Ben Bernanke's buddies...and nothing has been done to repair that issue.  This is all nuts.

Thu, 03/03/2011 - 20:22 | Link to Comment THE DORK OF CORK
THE DORK OF CORK's picture

Building houses is not capital formation - it is consumption - at least in the former industrial world.

Thu, 03/03/2011 - 22:57 | Link to Comment Cdad
Cdad's picture

Dork,

I am using 'capital formation' here in the broadest sense.  It is a big chip a guy puts down when he buys a house.  And right or wrong, people in this country still see their house as an investment that they expect to profit from.

As for capital formation investment wise, it is the same problem.  Until the criminal syndicate known as Wall Street is cleaned up, banks taken apart, predatory HFT trading halted...capital cannot form in that sense either.

Where are Americans putting their capital?  Round silver coins...stuffed in their mattresses.  You get my drift, I expect.  Point being, the Fed is the source of the problem...with its perpetual solutions.

Thu, 03/03/2011 - 19:25 | Link to Comment asteroids
asteroids's picture

Ben threatens Congress. Raise debt sealing or else! The else being he'll dump all the shit he's holding.

Thu, 03/03/2011 - 19:51 | Link to Comment Judge Judy Scheinlok
Judge Judy Scheinlok's picture

I like that!

Raise the debt stealing or else!

Thu, 03/03/2011 - 19:35 | Link to Comment prophet_banker
prophet_banker's picture

wow, that bar graph on ownership sure leaves a lot unaccounted for with less than 169 billion

Thu, 03/03/2011 - 20:01 | Link to Comment grid-b-gone
grid-b-gone's picture

$1.3 trillion and growing - the Fed's goal of top-down liquidity injection is progressing nicely.

When the time comes to drain liquidity, though, the Fed has a bottom-up plan. As stated, the Fed will use tri-party reverse repos targeting money market managers who each control the accounts of many individuals. A Fed CD-like instrument has been proposed, too, just in case individuals want to voluntarily commit their money to back up questionable Fed real estate instruments.

So, once inflation is at a level that it makes sense for the banks to loan rather than hold, the Fed will raise rates, equity markets will sell off, money market cash gets committed to tri-party deals, "may not be readily available" clauses get triggered, and liquidity is drained from the bottom.

Check the sweep details of any account you expect to always have ready access to. Some options now pay interest on swept cash, but the money becomes unavailable - sometimes for 7 days, sometimes longer. 

It looks like one of the ultimate goals of this chess match is to leave the largest banks (Fed members?) with a hoard of cash when rates hit an escape velocity. At the same time, the liquidity drain will force those at the bottom to seek loans before inflation and rates climb even higher. Inflation, and loans issued at strategically-inspired higher rates bring in a flood of cash that finally rights the money center bank situation.

The only individual response to all the possible scenarios of this unfolding crisis, is to avoid debt and pay off debt. 

Read or watch Pearl Buck's The Good Earth to understand how asset transfer can be accomplished without negotiating on a level playing field.

Thu, 03/03/2011 - 23:41 | Link to Comment Spalding_Smailes
Spalding_Smailes's picture

Pearl Buck's The Good Earth 

 

Thanks. Great info also ...

P.S • found out its part of a trilogy •

 

The Good Earth is a novel by Pearl S. Buck published in 1931 and awarded the Pulitzer Prize for the Novel in 1932. The best selling novel in the United States in both 1931 and 1932,[1] it was an influential factor in Buck winning the Nobel Prize for Literature in 1938. It is the first book in a trilogy that includes Sons (1932) and A House Divided (1935).


The novel of family life in a Chinese village before the 1949 Revolution was a best-seller in both 1931 and 1932 and has been a steady favorite ever since. In 2004, the book was returned to the best seller list when chosen by the television host Oprah Winfrey for Oprah's Book Club.[2] The novel helped prepare Americans of the 1930s to consider Chinese as allies in the coming war with Japan.

 

 

 

 

Fri, 03/04/2011 - 05:21 | Link to Comment StychoKiller
StychoKiller's picture

Too bad the movie version had a Caucasian "Wang Lung"

Thu, 03/03/2011 - 20:02 | Link to Comment Scottj88
Scottj88's picture

We have a lot of problems...
It is time we start looking at out "deficit" the right way...

http://thehardrightedge.com/budget/

 

P.S. -- This balance sheet as fake as the BLS numbers.

Thu, 03/03/2011 - 20:03 | Link to Comment High Plains Drifter
High Plains Drifter's picture

Would it be alright to water torture chairsatan and Blythe? 

Thu, 03/03/2011 - 20:23 | Link to Comment newworldorder
newworldorder's picture

You know despite all the gnashing of our collective teeth here,as well as commentary from others like Stockman and Black who have written extensively on these subjects - Very few of our citizens understand any of this. The MSM is not able to explain it to them. Even if they could, our fellow citizens are focused elsewhere.

It really is as simple as "There is no problem, until it becomes a problem."

Thu, 03/03/2011 - 20:57 | Link to Comment cranky-old-geezer
cranky-old-geezer's picture

$116B in other assets

... and somewhere around 20 trillion of off-balance-sheet currency swaps, repos, etc ...they think ...don't really know  ...don't really care.

Thu, 03/03/2011 - 21:02 | Link to Comment Dr. Porkchop
Dr. Porkchop's picture

Don't worry, they'll make a killing when they sell!!

Thu, 03/03/2011 - 21:08 | Link to Comment ginunn
ginunn's picture

Bernanke is demonstrating that the moniker, 'student of the Great Depression', is so appropriate. He knows exactly how to go about creating one.

Thu, 03/03/2011 - 23:32 | Link to Comment TideFighter
TideFighter's picture

Anybody seen Al Gore's cherry picker to see the top of these hockey sticks? 

Fri, 03/04/2011 - 00:36 | Link to Comment Sylvia Plath
Sylvia Plath's picture

Why "Mainland" China? Such a political graph.... Could just have said china...

Fri, 03/04/2011 - 00:52 | Link to Comment Mediocritas
Mediocritas's picture

Maybe someone here at ZH can explain just how the hell excess reserves are inflationary.

Look, I can print a quadrillion dollars and stick it in a big shed. Guess what happens to inflation? NOTHING.

Excess reserves will not be inflationary until they are multiplied into credit. Then you can start worrying about inflation. At this stage, those reserves aren't being engaged because they're already accounted for, ie, mark to market of the underlying of MBS (overvalued housing) would wipe out those reserves.

Banks know it. So does the Fed. But keeping things as they are now (left in this state after QE1) ensures banks don't violate capital adequacy requirements. The swap will be unwound over time, perhaps decades and those reserves aren't going anywhere. As I've said before, the process can be greatly sped up, and thereby feed into reversal of QE2 as the private sector recovers, by implementing a policy of principal writedown, a concept that ZH seems to hate...

Argh, junk away, why do I bother?

Fri, 03/04/2011 - 05:25 | Link to Comment StychoKiller
StychoKiller's picture

Imagine for a moment that this beautiful young woman is sleeping next to you in bed: http://en-gb.facebook.com/people/Karina-Hart/100000009201055

Now, do you "think" you have the will-power to just let her lie there?

NEITHER do the banksters!

Fri, 03/04/2011 - 03:23 | Link to Comment Double down
Double down's picture

Thanks buddy, really interesting stuff. 

Mon, 03/07/2011 - 20:44 | Link to Comment lsjcma
lsjcma's picture

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