Federal Reserve Accounts For 50% Of Q2 Treasury Purchases

Tyler Durden's picture

The degree of intermediation by the Federal Reserve in the issuance of US Treasuries hit a record in Q2, accounting for just under 50% of all net UST issuance absorption. This is a startling number, as the Fed's $164 billion in Q2 Treasury purchases dwarfs the combined foreign/household UST purchases of $101 billion and $29 billion, respectively, over the same time period. In fact, the Fed was a greater factor in UST demand than all three traditional players combined: Foreigners, Households and Primary Dealers, which amounted to a $158 billion in net Q2 purchases.

This dramatic imbalance puts a lot of question marks over how the upcoming hundreds of billions in incremental Treasury purchases will be soaked up, now that QE only has $15 billion of capacity for USTs: with Households lapping up risky assets it is unlikely they will look at Treasuries absent some dramatic downward move in equities, while Foreign purchasers, which many speculate are in a game of Mutual Assured Destruction regarding UST purchases, have in fact been aggressively lowering their purchases of Treasuries (from $159 billion in Q1 to $101 billion in Q2, an almost 40% decline in appetite!). Will the US make these purchases much more attractive come October when QE for USTs ends? And if so, what kind of rates are we talking about? One thing is certain: in terms of priorities of the Federal Reserve, keeping the equity market buoyant, is a distant second to ensuring successful auction after auction well into 2010. After all there is near $9 trillion in budget deficits that need financing over the next 10 years.

From Morgan Stanley:

Flow of funds: The Fed also released its flow of funds data for Q2 on September 17. The main points are that:

  • Households reduced Q2 Treasury purchases from their blistering pace in Q1
  • Foreign accounts reduced Q2 UST purchases as the Fed ramped up Q/E ops
  • Bank Q2 purchases remained anemic despite the fall in other lending options
  • Broker/dealer purchases were high but not sustainable, expect Q3 moderation


Households out…The salient points here include confirmation that the ‘households’ bid for $377 billion Treasuries in Q1 was a one-time reallocation trade as this account took down a much smaller $29 billion in Q2. We were afraid that this flow would not be sustainable, as the ‘households’ category really includes non-profits and other organizations that simply performed a one-time reallocation trade out of risky assets after their horrid performance in Q4 of last year.

Fed nudges out foreign bid…What is a bit worrisome at first glance is the slowdown in Treasury purchases by ‘foreign’ accounts from $159 billion in Q1 to $101 billion in Q2. Part of this likely reflects the crowding out of foreign investors by the Fed’s Treasury QE program which bought $164 billion Treasuries in Q2 (or close to 50% of the quarter’s net issuance) after a mere $16 billion purchase in Q1.

We anticipate this crowding out to continue in the Q3 data but for foreign accounts to return in Q4 once the Fed’s program expires. Bank buying still not large enough…While ‘banks’ have been ramping up their Treasury holdings with the latest quarter-on-quarter increase of 11%, the corresponding notional amount of $14 billion is still a bit of a disappointment considering the lack of alternative investment opportunities (e.g., C&I loans, home equity lines and consumer lending have all decreased in Q2). In fact, the ‘broker/dealers’ category experienced a much larger increase of $28 billion in Q2. This is generally consistent with the trend we’ve seen in the primary dealer positioning data from the Fed in for the first half of 2009, when primary dealers were reducing their Treasury shorts as they were also reducing their riskier longs in order to bring down the size of their balance sheets. With broker/dealer balance sheets now closer to the right size, we anticipate the broker/dealer buying has slowed down in Q3.

All else equal, these are precisely the questions that keep the Chairman up at night. The answers should present themselves quote soon.

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etrader's picture

Steve keen highlights a possable way out.

We need a "reset button" of Debt right offs!


Anonymous's picture

How about some bankruptcies and failures?

Anonymous's picture

No gimmick likely to change the inevitable supercollider collision between irresistible debt defaults and immovable

Consider that not only are half of new T bond subscriptions
financed by Fed Funny Money and insolvent banks,
but half of all Treasuries are Intergovernmental IOUs
like agency FDIC FHA OPIC, PBGC Medicare Social
Security Trust borrowings, counted as assets,
when in fact there is no marketable asset

No wonder real estate IOUs took a tumble when
government IOUs superceded them.

When the final fit hits the shan,
people realize markets are no longer free,
but rigged by a fiscal house of deficit cards.
Then ammo, bonds, commodities, diamonds, gold,
platinum and silver stocks may not soar, but collapse as horrified people scramble to raise the scarcest commodity of all - survival cash in hand, pocketbook or home safe.

This time government cannot go off the gold standard.
The quadrupling of gold since 1999 warned us
what is coming here now:

higher real interest rates adjusted for deflation,
some 33% in real terms yer over year so far.

Looking at things monthly as Uncle and his agents do misses this generational turning point.
The last one 72 million died.
The ones who survived warned US to save for a rainy day.
Oh the rains of Fall are a comin' and the times they
are a changin'...


Anonymous's picture

Mr. Expert on depression hard at work fucking up the world.

RobotTrader's picture

As long as market pundits continue to sound the "bear market rally" and "market is topping" alarm, hedge funds, speculators, pension funds, etc. will be fleeing to Treasuries instantaneously upon the slightest hint that stocks are going back down.

That is why treasuires always start screaming higher any time the Dow declines more than 50 points.

The Perpetual Motion Machine continues unabated.

. . .'s picture

This chick and her hamster wheel are better.  And cautionary for Bernanke -- when the chick was doing a demonstratin, it suffered a blow out, with the boards falling off.




Anonymous's picture

You blokes should bloody well know a good hamster when you see one. Unless you've spent your lives on the breadlines.

Here's mummy an pops.

msorense's picture

Problem is that the market hasn't declined at all in the past 10 days yet treasury yeilds remain depressed.  This is an unstable condition.  Either the yeilds catch back up fast or the market tanks.  I'm betting on the latter once again.  Something's got to give.

River Tam's picture

Rates have to rise to sell the debt.

deadhead's picture

yes, all things being equal with the current (outrageously high) debt structure, rates would need to rise to sell debt, aka bond vigilantism.

however, if rates rise the (hoped for) us economic recovery is phucked and as for the huge housing component, that is phucked even harder.

I think TD hit it squarely in the intro: "One thing is certain: in terms of priorities of the Federal Reserve, keeping the equity market buoyant, is a distant second to ensuring successful auction after auction well into 2010."


bonddude's picture

China apparently STILL has a voracious appetite.

Perhaps Hugh Hendry IS right about the bubble being the back up in yields.


Anonymous's picture

china is NOT buying. europeans are NOT buying...

etrader's picture

With Bernake now living in a Minskian world while perceiving it through friedmaite eyes we've got problems!

Anonymous's picture

Now I know this isn't the whole truth, I'm sure the tourist only got back 98% with a few brokers/investment banks involved.

Stimulus Explained

Imagine this scenario:

It is the month of August, on the shores of the Black Sea. It is raining, and the little town looks totally deserted. It is tough times, everybody is in debt, and everybody lives on credit.

Suddenly, a rich tourist comes to town. He enters the only hotel, lays a 100 Euro note on the reception counter, and goes to inspect the rooms upstairs in order to pick one.

The hotel proprietor takes the 100 Euro note and runs to pay his debt to the butcher.

The Butcher takes the 100 Euro note, and runs to pay his debt to the pig grower.

The pig grower takes the 100 Euro note, and runs to pay his debt to the supplier of his feed and fuel.

The supplier of feed and fuel takes the 100 Euro note and runs to pay his debt to the town's prostitute that in these hard times, gave her "services" on credit.

The hooker runs to the hotel, and pays off her debt with the 100 Euro note to the hotel proprietor to pay for the rooms that she rented when she brought her clients there.

The hotel proprietor then lays the 100 Euro note back on the counter so that the rich tourist will not suspect anything.

At that moment, the rich tourist comes down after inspecting the rooms, and takes his 100 Euro note, after saying that he did not like any of the rooms, and leaves town.

No one earned anything. However, the whole town is now without debt, and looks to the future with a lot of optimism ...

And that, ladies and gentlemen, is how governments are doing business today.

Anonymous's picture

Me thinks someone will look at their payment terms
and hold onto that 100 euro note. That is the
definition of deflation. Let the courts take the
100 euro note from my cold dead hands.

Gubbmint Cheese's picture

Points to remember about this economic scenario and its tidy 'solution' - 1: the original funds used by the shopkeeper were stolen (he didn't get permission to use it from the tourist) 2. Sure all the debts from the town are paid off.. But the economy isn't increasing and I'm assuming consumption remains the same.. Therefore this debt problem will happen again in the town.

Hmmm.. Stolen funds and an unfixed problem that will happen again.. Maybe it IS an accurate summary of the U.S. Situation.

monmick's picture

The hotel proprietor is out 100 Euro...

Anonymous's picture

You are correct. When the hooker pays him, she settles her debt. But the hotel proprietor must pay the $100 loand back to the wealthy tourist and is therefore out the $100 Euros. Very simple - it's just a trick (pardon the term) on words.

Gubbmint Cheese's picture

and with business so slow, you have to know he's going to rack the $100 'debt' up with the hooker again in no time. this town will soon need a hooker czar. spitzer perhaps?

brown_hornet's picture

His liabilities were reduced by 100 euro

Anonymous's picture

That's a clever analogy.

Not to disparaged it's humor,

it fails however to consider that though the debt owed
was equal the labor required to earn that 100 Euro note was not. It is only possible in a monopoly where there is only one of each.

And it is the proprietor that bears the brunt of the disparity as the accommodations he provides in such a monopolistic endeavor provides no capital for upkeep and it's state of disrepair is evident by the disdain of his prospective customers and the fact that he has no money for meat while the butcher and the whore are busy as
rabbits ruining his sheets and the springs of
the mattress.

Rusty_Shackleford's picture

Seems like each person in the town had $100 in debt but also had $100 in "Accounts Receivable"


Nothing changed.

Everyone (including the town itself) went from a balance of $0 to a new balance of $0.


So much for "Stimulus".

Anonymous's picture

Rusty Shackleford is right. Everybody had a balance sheet of zero, everybody's short term accounts receivable = accounts payable.

This story only illustrates what can happen when there is not enough money (as a medium of exchange) in circulation.

SilverIsKing's picture

Only way out ---> Dollar devaluation

Anonymous's picture

You will not have to wait that long...


Btw, Heard that Mugabe sends his regards to Bernanke for a job well done.

Anonymous's picture

Got Gold?

Anonymous's picture


texpat's picture

Tyler, the QoQ delta shows that SOMA purchases rose more than foreign ones, but foreign buying still dwarfed monetization.

Am I reading the table correctly?

Gordon_Gekko's picture

"how the upcoming hundreds of billions in incremental Treasury purchases will be soaked up, now that QE only has $15 billion of capacity for USTs..."

Perhaps some good old fashioned market panic might come in handy. And I'm sure it's going to be due to "deflation". Right.

"accounting for just under 50% of all net UST issuance absorption..."

Well, I wouldn't be so sure about that number now. The Fed/Treasury aren't exactly known for telling the truth.

RobotTrader's picture












WTIC Crude


Natural Gas

steve from virginia's picture

Thanks for the charts, RT;

I believe the oil chart bears the most correlation to the Fed's intentions/activities. As long as the trend is sideways - in a trading range - the Fed will continue to crowd out other investors in Treasuries (others would step in @ higher, asset inflation driven yields). The dollar/oil peg is the one that matters.

I also believe if oil breaks $75 (upside) yields will take off. The issue will not be inflation but debt default. Default yields are a lot higher than inflation yields. A default will destroy the US government's 'full faith and credit'. It's a scary risk game that's being played by a washed up ex- college professor and the outcome is not going to be pretty, regardless of how this particular tactic works out.

For one thing, higher yields mean a lot of dirty laundry (bad loans) will bolt out of the closet and a lot of businesses will fail.

Andy Xie, who has as good a grip on current developments as anyone has been writing a lot of interesting material about the asset bubbles that never end.



Anonymous's picture

it ought to be illegal for them to do this. how long can this continue? how long?

Anonymous's picture

All sovereign monetary policies are easy when one accepts the basic tenet: The people can be made to pay.

All books can be balanced. All debts paid. All parties made whole.

... as long as the common man picks up the tab.

It's all very orderly. Now bend over. The powers that be would like a turn with you.

Anonymous's picture

The bailouts stopped at the banks. Consumers are left to fend for themselves.

Anonymous's picture

The 890 billion YoY increase by foreign CB's is head fake. Sure the bought that, but dollar for dollar the sold Agency MDS back to the Fed. There is more of that to come, but it will end also. How the hell are we going to sell $9 trillion?

It seems like an impossible task.

Anonymous's picture

so if the FED doesn't buy them, then we have a failure? is that about it? man, why don't they talk about stuff like this on CNBC? these americans simply do not know what is really going on.

RobotTrader's picture

Attn:  Deflationists

Latest from Rasputin.


"Please forgive the length of this missive, but
there is a lot of material that must be presented in order to properly
make the case for what will happen next.

Below, please find a number of statistics and calculations
regarding the real estate collapse and attendant debt destruction,
followed by my conclusion as to what the Fed and Uncle Sugar have in
store to deal with this bust.

First, let's do a comparison between the peak housing bubble year
of 2006 and today (2009), starting with the number of units sold:

New home sales:

2006: 1.4 million units

2009: 400 thousand units

And here is a link to a graph of the horror, provided by Calculated Risk blog:


And it doesn't look much better for "existing" (translation: "used") McMansion sales either:

Existing (translation: used) home sales:

2006: 7.1 million units

2009: 5.1 million units

And here is the link, again courtesy of Calculated Risk:


Next, let's compare selling prices. I have culled these numbers from various sources and came up with an average price:

Average price per McMansion:

In 2006, approximately 220k fiatscos

In 2009, approximately 160k fiatscos

Now, let's total up and compare the two years (2006 and 2009) and see just what kind of damage we are facing:

Totals 2006:

Total new and used McMansions sold in 2006: 8.5 million units

Average price per McBox: 220k fiatscos

Total housing sales revenue, 2006: 1.87 TRILLION fiatscos.

Totals 2009:

Total new and used McMansions sold in 2009 (estimated): 5.5 million units

Average price per McBox: 160k fiatscos

Total housing sales revenue, 2009: 880 billion fiatscos.

Or a loss of approximately: 1 TRILLION fiatscos in revenue, per year.

(Ras): Ouch. One trillion in revenue wiped right off the map. Per
year. Not to mention all the peripheral industries related to housing
(such as home building, furniture, landscaping) that have been
decimated by this bust.

But wait, it gets better.

Now let's take a peek at how much housing "wealth" (equity) has
been destroyed in this epic bust. Based on the Case Shiller index drop
of house prices of approximately 30% so far, here are the stats:

Total number of McMansions, U.S.: approximately 100 million

Previous selling price: 220k fiatscos

Average loss per unit (in percent): 30%

Average new house price (rounded up): 160k

Total amount of housing "wealth" destroyed: approximately 6 TRILLION fiatscos

So, what's the big deal if "equity" has been dropping? Well, let's
take a gander at what the latest Federal Reserve "Flow of Funds" report
tells us about who is holding all the debt on these
rapidly-diminshing-in-price houses.

From Federal Reserve "Flow of funds":

Total GSE MBS/Ginnie MBS outstanding: 6.5 Trillion fiatscos

Total amount of R.E. loans banks hold: 4 trillion fiatscos

Total Real Estate debt held by GSEs/Banks: 10.4 trillion fiatscos

Total amount of destroyed debt (using 30% drop in R.E. prices): 3 trillion fiatscos.

So, at this point, according to my calculations, Uncle Sugar (via
Fannie, Freddie, FHLBs and Ginnie/FHA), the Fed and the banks are
sitting on MASSIVE losses on their real estate loan portfolios. As much
as three trillion fiatscos.

Plus all the trillions in derivatives bets based on ever-rising house prices, now gone bad.

So, given the complete devastation the housing bubble has wrought
on the banking and "shadow banking" system, it's no wonder that Uncle
Sugar and the Fed jumped in with both feet and literally
nationalized/monetized the whole mess.

In fact, according to Doug Noland's latest "Credit Bubble Bulletin", Uncle Sugar and the Fed are backstopping:


...of ALL mortgages in the U.S., and are underwriting approximately the same percentage of all new mortgages.

(Ras Conclusion): So, with trillions of fiatscos in losses
on the line, there is--and I say this in all sincerity--no, none, zip,
nada, alternative that Uncle Sugar and the Fed have but to try to
re-incite the housing bubble to its former glory.

Otherwise, Uncle and the Fed are going to eat that three trillion
in destroyed debt (either directly, or through their guarantees to the
banks and GSEs). Plus all the derivatives bets that need to be made
good (think "AIG pays off Goldman Sachs).

So, it's "Inflate or Die". The housing bubble must be reflated,
eight million homedebtors PER YEAR need to not only be able to sign off
on ever-increasing home debt, but also make the payments to Uncle Sugar
and the Fed. And those payments gotta come either from income (how
quaint!), or from "equity" extracted from ever-rising asset prices,
such as stocks and houses themselves.

Therefore, it is a matter of self-survival for our very government
that the stock markets and housing markets be re-skied...the U.S.
nightcrawler be damned. Because there is NO WAY that Uncle and the Fed
are going to swallow those kinds of losses.

The only alternative is to liquidate this whole mess, and not only
do tens and tens of millions of former homedebtors get thrown out into
the streets, and not only is the banking system totally destroyed, but
so too are Uncle Sugar and the Fed, due to their taking on the enormous
exposure to real estate that they have.

And, given all the programs, schemes, scams, monetizations,
nationalizations and other proppage that Uncle Sugar and the Fed have
undertaken to date, they obviously have NO INTENTION of voluntarily
liquidating this mess, but rather on inflating our way out of it.

And forget our foreign debt-enablers. The Fed will be buying each
and every mortgage MBS generated by the GSEs and Uncle Sugar will
continue to pump mortgages through FHA/Ginnie until they accomplish
their goals to re-ignite the real estate bubble.

So, "Inflate or Die" it is.

Or probably more accurately: "Inflate AND die".

Summary of "Fiatco Flinging YTD":

Federal Programs and Initiatives announced and/or distributed:

Date Federal Reserve Amount Entity

August 9, 2007 Temporary Reserves1 $24,000,000,000 FRB

August 11, 2007 Temporary Reserves2 $ 38,000,000,000 FRBNY

September 6, 2007 Temporary Reserves3 $ 31,250,000,000 FRB

March 7, 2008 Single Tranche Repurchase Agreements4 $ 80,000,000,000 FRB

March 11, 2008 Term Securities Lending Facility (TSLF)5 $ 200,000,000,000 FRBNY

March 14, 2008 JPMorgan, Bear Stearns bridge loan6 $ 12,900,000,000 FRBNY

M h16 N tP tf li M id L B St )7 March 16, 2008 Net Portfolio Maiden Lane LLC (Bear Stearns)$ 29 816 000 000 FRBNY

29,816,000,000 March 16, 2008 Primary Dealer Credit Facility (PDCF) (as of 10/01/2008)8 $ 147,692,000,000 FRBNY

June 18, 2008 Tri‐Party Repurchase Agreements9 $ 124,643,000,000 FRB

August 8, 2008 Term Securities Lending Facility Options Program (TOP)10 $ 50,000,000,000 FRBNY

September 19, 2008 Asset‐Backed Commercial Paper Money
Market Mutual Fund Liquidity Facility (AMLF) (as of 10/08/2008)11 $
145,890,000,000 FRB

Sept 17 2008 JPM transaction12 Sept. 14/17, Chase/Lehman Brothers $ 138 000 000 000 FRB

138,000,000,000 Sept. 15‐18, 2008 Open Market Operations13 $ 125,000,000,000 FRB

September 29, 2008 Foreign Central Bank Currency Liquidity Swaps14 $ 755,000,000,000 FRB

October 6, 2008 Term Auction Facility (TAF)15 $ 900,000,000,000 FRB

October 7, 2008 Commercial Paper Funding Facility LLC (CPFF)16 $ 1,800,000,000,000 FRBNY

October 21, 2008 Money Market Investor Funding Facility (MMIFF)17
(total: $600 bln, Fed provides 90% of financing, $540 bln) $
540,000,000,000 FRBNY

as of Oct. 29, 2008 Primary Credit18 $ 111,946,000,000 FRB

March 3, 2009 Term Asset Backed Securities Loan Facility (TALF)(created 11/25/08, extended 3/3/09)19 $ 1,000,000,000,000 FRBNY

October 8, 2008 AIG Securities Lending Facility20 $ 37,800,000,000 FRBNY

November 10, 2008 AIG Credit21 $ 60,000,000,000 FRBNY

November 10, 2008 Maiden Lane II LLC (22 AIG) $ 22,500,000,000 FRBNY

November 10, 2008 Maiden Lane III LLC (AIG)23 $ 30,000,000,000 FRBNY

November 25, 2008 MBS Program24 $ 500,000,000,000 FRB

November 25, 2008 GSE Program25 $ 100,000,000,000 FRB

March 2, 2009 Loan to AIG's Life Insurance Subsidiaries26 $ 8,500,000,000 FRBNY

Preferred Stock Interests27 March 2, 2009 $ 26,000,000,000 FRBNY

March 18, 2009 Additional MBS28 $ 750,000,000,000 FRB

March 18, 2009 Agency debt purchase29 $ 100,000,000,000 FRB

March 18, 2009 Treasury Purchase Program (TPP)30 $ 300,000,000,000 FRB

as of July 27, 2009 Expansion of System Open Market Account (SOMA) Securities Lending31 $ 36,000,000,000 FRBNY

Subtotal: $ 8,224,937,000,000

March 17, 2008 JPMorgan, Bear Stearns bridge loan repaid32 $ (12,900,000,000) FRBNY

Sept. 14/17, 2008 JPM Chase/Lehman Brothers transaction33 $ (138,000,000,000) FRB

November 10, 2008 AIG Securities Lending Facility repaid and terminated34 $ (37,800,000,000) FRBNY

March 2, 2009 AIG's $60 b Credit reduced to $25 b35 $ (35,000,000,000) FRBNY

Total: $8,036,237,000,000

Date Department of the Treasury Amount

February 13, 2008 Stimulus Package36 $ 168,000,000,000

September 7 Fannie Mae and Freddie Mac backup GSE Preferred Stock
Purchase Agreements (PSPA) 37 7, 2008 backup, $ 200,000,000,000

September 17, 2008 Supplementary Financing Program to provide cash to the Federal Reserve (SFP)38 $ 260,000,000,000

September 19, 2008 Treasury Exchange Stabilization Fund (ESF)39 $ 50,000,000,000

October 3, 2008 Troubled Asset Relief Program (TARP)40 $ 700,000,000,000

October 7, 2008 Special Deposit to FRBNY for Commercial Paper Funding Facility LLC (CPFF)41 $ 50,000,000,000

February 17, Act42 2009 Recovery Act $ 787,000,000,000

February 18, 2009 Fannie Mae and Freddie Mac backup, GSE Preferred Stock Purchase Agreements (PSPA)43 $ 200,000,000,000

May 18, 2009 Potential International Fund Liabilities44 $ 100,000,000,000

July 21, 2009 Money Market Mutual Fund (MMMF) Program (as of Q1 2009)45 $ 3,738,700,000,000

July 21, 2009 GSE MBS Purchase Program46 $ 314,000,000,000

July 21, 2009 GSE Credit Facility Program47 y , y g $ 25,000,000,000

July 21, 2009 Tax Benefits and Community Development Block Grant (CDBG)48 $ 19,000,000,000

July 21, 2009 Student Loan Purchases, and Asset‐Backed Commercial Paper Conduits49 $ 195,000,000,000

Subtotal: $ 6,806,700,000,000

Date Federal Deposit Insurance Corporation Amount

October 14, 2008

Temporary Liquidity Guarantee Program (TLGP)50 sum announced, see below (not counting towards the

total) [1,400,000,000,000]

December 31, 2008 Enhanced Deposit Insurance (to $250K/account)51 $ 700,000,000,000

March 16, 2009 Temporary Liquidity Guarantee Program‐Debt Guarantees (TLGP ‐ DGP)52 $ 940,000,000,000

June 16 2009 Program Program 53 16, Temporary Liquidity Guarantee
Program‐Transaction Account Guarantee (TLGP ‐
TAG)*$ 684 000 000 000 684,000,000,000

Subtotal: $ 2,324,000,000,000

Date Joint Programs Amount

November 23, 2008 Citigroup asset guarantee54 $ 301,000,000,000

January 16, 2009 Bank of America asset guarantee (see footnote)55 $ [118,000,000,000]

February 10, 2009 Public‐Private Investment Fund ($500
billion with a maximum potential of $1 trillion)56 $ 1,000,000,000,000

Subtotal: $ 1,301,000,000,000

Date Federal Housing Administration Amount

30 2008 FHA57 July 30, Hope for Homeowners FHA $ 300,000,000,000

Date Other Federal Housing and Financial System Support Amount

November 7, 2008 Increase in Guarantees by Government National Assoc. (58 Mortgage GNMA) $ 149,200,000,000

November 17, 2008 Increase in Guarantees by Federal Housing Authority (FHA)59 $ 134,500,000,000

January 7, 2009

NCUA Homeowners Affordability Relief Program (HARP) and Credit Union System Investment Program (CU

SIP) ($8.4 bln as of 6/30/08) potential:60 $ 41,000,000,000

March 31, 2009

National Credit Union Administration (NCUA) Temporary Corporate Credit Union Liquidity Guarantee

Program (TCCULGP)61 $ 15,200,000,000

I i G b D f V Aff i 62 Increase in Guarantees by Dept. of Veterans Affairs (VA)$ 10,600,000,000

Subtotal: $ 350,500,000,000

Total: $ 19,307,137,000,000

Date Implied Guarantees Amount

December 10, 2008 FHFA—Fannie Mae/Freddie Conservatorship63 $ 5,500,000,000,000

Obligations that have been viewed as enjoying an “implied” guarantee:

Mac Conservatorship December 10, 2008 FHFA—Implied Guarantee of FHLB liabilities64 $ 1,300,000,000,000

Total: $ 6,800,000,000,000

Total potential support including implied guarantees: $ 26,107,137,000,000

(Source: "Bailout Tally Report"

by Nomi Prins and Krisztina Ugrin)

...or why the Fed would accept such horrid, toxic "collateral" as this list below?:

Cabela’s Credit Card Master Note Trust

CarMax Auto Owner Trust 2009-1

Chase Issuance Trust

Citibank Credit Card Issuance Trust

CNH Equipment Trust 2009-B

Ford Credit Auto Owner Trust

GE Capital Credit Card Master Note Trust

Harley-Davidson Motorcycle Trust 2009-1

Honda Auto Receivables 2009-2 Owner Trust

Huntington Auto Trust 2009-1

MMCA Auto Owner Trust 2009-A

Nissan Auto Receivables 2009-A Owner Trust

SLM Private Education Loan Trust 2009-B

Small Business Administration Participation Certificates

Volkswagen Auto Lease Trust 2009-A

World Financial Network Credit Card Master Note Trust

World Omni Auto Receivables Trust 2009-A

...under just ONE of their many alphabet-soup programs (and the
Fed won't even disclose the even more toxic trash on which they are

Gordon_Gekko's picture

So, "Inflate or Die" it is. 

Well, the problem is that it is just "Die" no matter what.

djchill2's picture

so....what is the right move?  The truth is, I don' t think anyone really knows because this kind of self-destruction is really without precedence given that we still hold the world's reserve currency.  However, I still think that the only real protection for those of us in the US is to get physical gold and silver....ammo...guns...ect...I hate to be so "end of the worldish" but please feel free to pipe up with a better idea if you have one.

Village Idiot's picture

I'm hedging - just purchased a Remington 870 Express Tactical 12 Guage and a Stag Arms AR 15 style assault rifle.  My timing looks to be good, too, as the the price/availability of ammo is much improved over last year.  Well, that's my contribution to ZH today.  Take care.

Charley's picture

"The truth is, I don' t think anyone really knows because this kind of self-destruction is really without precedence given that we still hold the world's reserve currency."

This could only have happened to the nation holding the world's  reserve currency. Anyone else would have been told to bugger off.

Giving a democracy the world reserve currency status was like giving a crack head the winning ticket in a lottery...

Anonymous's picture

Once China dumps its dollars, secures enough gold, it will tell the USA to "bugger off", and maybe with a mushroom cloud for effect.

Anonymous's picture

so so so true....

sound economics teaches morality which means
that reward and punishment are meted out without
respect to persons...

however, in true spoiled baby boomer fashion
risk and reward are decreed away as barbaric
atavisms of a simpler people....and also as a
means of pandering to sheeple....

the village idiot is smarter than the princton
phd holder selling snake oil at the fed....

hard money and hard money only! (gold).

Anonymous's picture

No. "Inflate or Try" it is.

...and to quote the great Dune:

"They tried and failed?"
"No. They tried and died"

Anonymous's picture

RobotTrader, this is an awesome post. Thanks for sharing..
These are really scary times...

D.O.D.'s picture

In a time of universal deceit, telling the truth is a revolutionary act.

--George Orwell

Anonymous's picture

I'll grant you it's not pretty or clever or even sane when all of the other government initiatives being debated are considered, but:

"Public debt in 1860 totaled $64.8 million (the annual budget of the federal government at the time was $63.1 million)....

By the end of 1865, interest-bearing public debt stood at $2.2 billion, but the union had been preserved."

They didn't even have electricity in 1865 yet I bet they didn't pull their hair out while sitting in the outhouse wondering if they should spare a square for possible use as future currency!


steve from virginia's picture

There are other financial industry losses that are off balance sheet, including those on the 'Too Big To Fail' Fed's. Yeah, the Fed is just another lousy, stinkin' bank.

It's hard to 'get one's head around' the Fed cranking out trillions and having them do ... what, exactly? Inflation ... ? Yes, but only in certain asset classes such as bonds and stocks. Some leaks into shadow banking and derivatives (heaven help us all if short term rates increase suddenly considering the exposure of banks to unbalanced short term interest rate swaps).

Oil prices paint the Fed into a corner. Oil @ $70 is an economy killer all by itself. Hey! It's working! Just look out the window! Our economy was built on $20 oil and the entire pricing structure requires cheap petroleum. $100 oil and the entire game is over in a heartbeat and the various initiatives listed upstairs are underwater. Not to mention all the customers for the 'real' US economy as well as the businesses that serve them.

I know how this boxing match is going to turn out. One one hand is the collective imagination of the government/establishment/banking business and their ability to manufacture unlimitied amounts of credit out of thin air. On the other is the 2d law of thermodynamics. Who (or what) is going to win?


The hearts and hopes of a nation ride on the efforts of the Federal Reserve Bank and Benjamin Bernanke!


I'll bet on nature, thank you. Entropy always wins.