Fed Balance Sheet Hits Record $2.2 Trillion In Assets On $71 Billion Weekly Increase In MBS

Tyler Durden's picture

The Federal Reserve's balance sheet hit a new all time record of $2.19 Trillion in assets, after an unprecedented spike of over $70 billion in MBS purchases pushed the number over the previous record from late April.

  • Securities held outright: $1,774 billion (an increase of $96 billion MoM, resulting from $3 billion in new
    Treasury purchases, $79 billion increase in MBS and $19 billion in Agency Debt), or a massive $75 billion increase sequentially. To put this in perspective, the weekly change along is enough to finance 25 Cash For Clunkers programs. Yet this was money burned at the alter of low mortgage rates so that deadbeat homeowners who bought at the top of the speculative bubble mania don't ever have to rent, and actually live within their means.
  • Net borrowings: $218 billion. Total excess reserves declined marginally from $1.12 to $1.1 trillion. The Monetary base likewise dropped by the same amount to $1.99 trillion from $2 trillion.
  • Float,
    liquidity swaps, Maiden Lane and other assets: $199.5
    billion. In a surprising move, the Fed's CPFF program staged its first increase in total holdings week over week, from $14.4 billion to $15.1 billion, after dropping in a straight line from its peak in January at $350 billion. FX liquidity swaps declined by a "noise" amount to $28 billion,
    bringing these to another fresh 52 week low. Maiden Lane I and Maiden Lane II (Bear bailout special) were at $26.3 and $15.7 billion, while Tim Geithner's Goldman rescue package better known as Maiden Lane III came at $22.9 billion.

Foreign holdings increased by $16.7 billion to $2,932 billion. A way to visualize the disproportionate increase in foreign UST holdings versus Treasury holdings is presented by the chart below. While Total foreign holdings increased by $320 billion during the time QE was in process of accumulating Treasury purchases, the Fed acquired, as expected, $300 billion. The disproportionate increase in Foreign (and Total) versus Fed holdings can be seen on the chart below.

Another way of visualizing how the Fed accounted for almost half of all UST purchases since March is on the indexed chart below. While Foreign holdings increased by 12%, those of the Fed went up by a staggering 63%. With the Fed no longer purchasing (at least so the party line goes) any more Treasuries, the question of who will step in to fill the void is an festering one.

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ghostfaceinvestah's picture

so our currency is now over 50% backed by fannie/freddie MBS, and we wonder why gold is going to record highs?

no mystery to me.  none at all.

Cursive's picture

The FR didn't/still doesn't have the authority to buy this crap.  I agree with you and am outraged that this private banking cartel is killing the middle class.  However, I would also ask you to consider that the FR is at the top of the central bank pyramid and, if and when those foreign swaps are unwound, we could see a return of the Almighty Dollar and every other asset class, gold included, crash.

Assetman's picture

Yeah, the core of the balance sheet of the largest central bank of the world is based on an asset that doesn't have a true market value-- or a true market.

And there's a possiblity of even adding a $ trillion or more in additional MBS next year.

If so, the dollar is toast.

SloSquez's picture

Keep pushin Tyler, the waves are coming fast now.

RockyRacoon's picture

I liken it more to the ocean going out, exposing the trash on the ocean floor, before the tsunami hits!   ...wave after gigantic wave.

SloSquez's picture

Like the visual.  I was thinking sand bar.  I like your's better.

RockyRacoon's picture

Oh, just imagine if there were fully transparent Fed activities! 

There is no fan big enough to run all this crap through.

No wonder the Fed is struggling to stay opaque.

(What is that avatar anyhow?)

SloSquez's picture

My avatar - Gerald Bull's creation.


Brilliant man - not such good decisions.

lizzy36's picture

hmmm, wasn't the throttle on mbs purchases supposed to be decelerating?

and those purchases really seem to be helping; mortgage rates at a 6ms low, home buyer tax credit extension, yet mortgage application fell to a 12 year low. 

clearly that $70b was money very well spent.

ghostfaceinvestah's picture

doesn't surprise me at all - the Fed's money printing has had the exact opposite effect as they thought - all they did was drive up commodities prices and throw a cog into any economic recovery, anything people "save" on lower mortgage rates they are losing due to the unemployment spurred on by higher energy prices.

we would be better off with $30 oil and 6% mortgage, vs $80 oil and 5% mortgages.


Oso's picture

"we would be better off with $30 oil and 6% mortgage, vs $80 oil and 5% mortgages"




reading's picture

And don't forget since we don't really make anything here (let's not get too excited about exports getting us out of this) we'd also be paying less for everything we need at Walmart and Costco the new fave places to shop.  I really don't think I will every understand how any self-respecting banker can think devaluing our currency is a feel good moment...it makes me sick.  This whole thing is turning me into a raging capitalist and frankly I wouldn't have considered myself that 18 months ago -- fiscal responsibility yes, but now I seriously think they need to have the damn ink taken away as they are clearly getting high on the fumes over at the fed and treasury.

ghostfaceinvestah's picture

yes, the trade deficit jumped last month.  isn't it supposed to shrink as our currency gets slaughtered?  oh, no, that's right, we import a shitload of oil.  which went up in USD because we have been slaughtering the currency.


the idea that debasing our currency will all of a sudden spur this manufacturing renaissance is ridiculous.  it would take years, or decades, what we have been destroying over decades.

The Fed's policies are a disaster, and are leading us into the greatest depression this country has ever seen.

Brett in Manhattan's picture

The flaw in the devalued currency = increased imports equation is that a steadily declining dollar will make foreign buyers continually put off their purchases with the expectation that they'll get stuff even cheaper down the road.

dumbquant's picture

its such an f'n cop out.  They are perverting, defiling, & disgracing any hard earned money that an average american worked hard & saved.  Our forefathers would be sick to their stomachs, & if their ghosts could visit us, it would be like the parents coming home early one weekend while the kids are having a party, & they would be furious.  Seriuosly, everyone agrees now that Greenspan was wrong to keep rates so low after the fact, & everything being done now is orders of magnitude worse.  They're betting rags like they're a full boat.

reading's picture

What I find truly amazing is that no one has any accountability.  If you measure any of these bailout programs based on the merits of how we were told they were to be used they are a complete failure yet all we get is we need to spend more more -- give me a f-ing break.  Just stop spending money for 5 minutes and try to get our fiscal house in order.

TARP -- buy toxic assets...nothing there.  Banks still stuffed full of worthless toxic crap but hey the stock price is up so that must be good

Stimulus -- must do to make sure u/e peaks at 8%.  Without stimulus we're going to 10%.  Well nice spending of a trillion to make sure we go right over 10%.

This whole thing is ridiculous.  When is someone going to admit that at some point you have to force markets to heal or just abandon capitalism all together.  This hybrid is simply a disaster that is killing the real middle class.

dumbquant's picture

seriously, all these banks & their employees got rich spinning, churning, & moving these 'troubled' assets around the system, & they had to get relief or else small businesses would shut down b/c they cant get credit?  when was the last f'n time MS or GS issued a small business loan?  On another note 3 month yields go negative & equity mkt @ has had epic multiple expansion since March.  One of these mkts is wrong.  I'm guessing its not the fixed income mkt. 

Brett in Manhattan's picture

These programs can be rationalized by saying that had we not done anything we would've spiralled into depression. This premise can't be proved false, therefore administration is protected from criticism.

Anonymous's picture

That another $70 billion to gun the market with. The US taxpayer is left high and dry while the banks will double that money on some burnt out near bankrupt company.

deadhead's picture

laugh or cry.

laugh or cry.

laugh or cry.


SloSquez's picture

I choose - Cry.  You should too.

Oso's picture



i kind of do both simultaneously.  its what being strapped in a straight-jacket and locked in a looney-bin must feel like.


faustian bargain's picture

I just bottle it all up inside, keep it all packed down in there.

Anonymous's picture

It's not a "balance sheet", that's the former, antiquated description. So 90's........

It's now a "balance shit".

LittleSambo's picture

Is there any legal limit to how far the Fed can expand its balance sheet?

heatbarrier's picture

Nov. 19, 2009,
Panel votes to audit the Fed; cap its spending at $4 trillion
Measure would audit the Fed's monetary policies such as interest rates


SayTabserb's picture

Currently, I think sky's the limit. What I would be interested in is anyone's opinion on whether Sec. 14 of the 1913 Act in any way authorizes the purchase of mortgage-backed securities as one of the listed assets the Fed banks are allowed to deal in. 

Brett in Manhattan's picture

Much like the codocil in the Faber College bylaws that allowed Dean Wormer unlimited power in times of emergency, the Fed has its own rule for moving the goalposts when things aren't going as planned.

SayTabserb's picture

Festering, indeed. Obama's stated intention to work on lowering the deficit in 2010 may represent a case of making a virtue out of necessity. If the Fed bought 1/2 of the Treasury action since March (as it certainly appears to have done), then all these auctions coming up could get a little dicey if the "buyers" are not backstopped by the Fed rushing in a few days later to take the zero % scrip off their hands. This is going to get weird, I think.

ghostfaceinvestah's picture

don't worry, the Fed will pressure the banks into buying the Treasuries, just like Argentina did in 2001.

same playbook, different country.

deadhead's picture

agreed....that trillion in reserves on deposit at the Fed can buy some serious paper.

Anonymous's picture

sure, the Fed will instruct GS to pull the plug on the equity markets so they can herd the $$$ into treasuries

SloSquez's picture

Nikkei tankin again.

Anonymous's picture

paging mish shedlock...paging mish shedlock...

tuition rates are up 32 percent at ucla

is this inflationary....repeat.....is this inflationary????


SloSquez's picture

Govenorated, Pelosied, Calfornication...you decide.  I think every American should give UCLA $1....not!  Ask the illegals, maybe they can help.

SloSquez's picture

The cop in the bike hat code named, "Sebastian" is killing me.  LMAO.  Californians wouldn't know a riot if it hit them in the face.

IE's picture

Please don't call the game in the first few innnings. I personally don't think this issue is an inflationary sign at all, in context.  I think this is more of a sign of emerging/growing scarcity ... which is actually a symptom of deflation.  The prices of luxury items (e.g. education) can actually increase for a while during times of deflation...as the prices are bid up by the fewer & fewer people who have currency ... until the luxury items are no longer available because there aren't enough people to justify the production.  In this case this will eventually result in a decrease in the demand & availability of education... or ... not inflationary at all.

Anonymous's picture

Last year I calculated about 500-750 billion of pure stimulus out of saving on energy,that would have provbably created some natural and not invasive growth. Coupled with some smart tax incentive geared towards relocation of manufacturing to the US,deflation in wages and cost of doing business,a couple of years of suffering would have been probably been followed by real recovery. Instead,now we have the threat of total collapse,or the ugly stagflation,pick your choice...

SayTabserb's picture

Well, you see - that's it right there. "Couple of years of suffering." No can do. Takes you right up to Nov. 2010. Not politically possible. So better to have two years of pretend followed by 10 or 20 years of collapse.

delacroix's picture

feds a private bank. if they buy stuff they are not authorized to. then why would the american poeple be obligated to cover their losses. we play by the rules, you play by the rules. its a contract one side breaches, contract void

Fritz's picture

input = the Fed's grand experiment

output = Epic Fail

Anonymous's picture

I'm kind of glad my FRNs are backed by MBS. After all, shouldn't my cocaine laced FRNs be backed by defaulted-on mortgages of Miami condos? I feel like Don Johnson!

send lawyers guns and money's picture

Well, I for one am glad to have my FRNs backed by MBS.  After all, who wouldn't want their cocaine-laced $20's backed by foreclosed-on Miami condos?  Don Johnson, you ain't got nuthin' on me!

Anonymous's picture

So, the amount of Treasuries in the balance of the Fed is not that big compared to 07. What has basically exploded the balance sheet are the MBSs the Fed has bought.

That might be the deal with the banks: Fed buy (toxic) MBSs, while banks buy (short term) treasuries.

Now that might explain the negative interest rate on short term T-paper, or doesn't it?

Anonymous's picture

Denninger had a post yesterday with a letter that Congressman Elijah Cummings sent to Barney Frank and Christopher Dodd recommending a full audit of the fed after the testimony by Neil Barofsky, Special Inspector General. Cummings sounds pretty pissed. Hopefully this isn't some kind of grandstanding stunt to make himself look good for the constituents.


Anonymous's picture

You guys all sound so angry. You need to get a flu shot and chill.

snorkeler's picture

Try the Ukrainian Black version.  It seems to protect the best. Especially if you have piled on allot of debt.

Martijn's picture

Alright guys,

The Fed's balance sheet has mainly increased on MBSs. That means it must have purchased those from the banks holding them. As at the same time we see interest on short term Tresuries turn negative, it seems to me that banks are using the cash they got for the MBSs to buy T-bills.

Seems like a clear case doesn't it?

Brett in Manhattan's picture

No, the banks are just putting the money in "their" bank, the Fed, which is now paying interest on reserves.

The advantage of doing this is that when the Fed finally raises rates, the banks don't have to sell their treasuries at a loss.