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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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Sun, 09/20/2009 - 16:32 | Link to Comment etrader
etrader's picture

Steve keen highlights a possable way out.

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

http://www.youtube.com/watch?v=VoqaMzBK4pc&feature=player_embedded

Sun, 09/20/2009 - 20:55 | Link to Comment Anonymous
Mon, 09/21/2009 - 11:57 | Link to Comment Anonymous
Sun, 09/20/2009 - 16:34 | Link to Comment Anonymous
Sun, 09/20/2009 - 16:39 | Link to Comment RobotTrader
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.

Sun, 09/20/2009 - 16:56 | Link to Comment Anonymous
Sun, 09/20/2009 - 17:02 | Link to Comment . . .
. . .'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.

http://www.youtube.com/watch?v=MSXtQwc6qD4&feature=player_embedded

 

http://www.edp24.co.uk/content/edp24/news/story.aspx?brand=EDPOnline&category=News&tBrand=edponline&tCategory=news&itemid=NOED01%20Apr%202007%2018%3A03%3A03%3A143

Mon, 09/21/2009 - 00:45 | Link to Comment Anonymous
Sun, 09/20/2009 - 19:16 | Link to Comment msorense
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.

Sun, 09/20/2009 - 22:05 | Link to Comment phaesed
phaesed's picture

http://fraser.stlouisfed.org/docs/meltzer/fisdeb33.pdf

 

Debt deflation, the ultimate outcome.

Sun, 09/20/2009 - 16:45 | Link to Comment River Tam
River Tam's picture

Rates have to rise to sell the debt.

Sun, 09/20/2009 - 17:03 | Link to Comment deadhead
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."

 

Mon, 09/21/2009 - 00:35 | Link to Comment bonddude
bonddude's picture

China apparently STILL has a voracious appetite.

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

http://www.bloomberg.com/apps/news?pid=20601087&sid=aKvtw723S1c0

Mon, 09/21/2009 - 07:14 | Link to Comment Anonymous
Sun, 09/20/2009 - 16:52 | Link to Comment etrader
etrader's picture

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

Sun, 09/20/2009 - 16:58 | Link to Comment Anonymous
Sun, 09/20/2009 - 17:07 | Link to Comment Anonymous
Sun, 09/20/2009 - 18:54 | Link to Comment Gubbmint Cheese
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.

Sun, 09/20/2009 - 19:42 | Link to Comment monmick
monmick's picture

The hotel proprietor is out 100 Euro...

Sun, 09/20/2009 - 21:29 | Link to Comment Anonymous
Sun, 09/20/2009 - 22:08 | Link to Comment Gubbmint Cheese
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?

Sun, 09/20/2009 - 23:23 | Link to Comment brown_hornet
brown_hornet's picture

His liabilities were reduced by 100 euro

Sun, 09/20/2009 - 22:24 | Link to Comment Anonymous
Mon, 09/21/2009 - 00:54 | Link to Comment Rusty_Shackleford
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".

Mon, 09/21/2009 - 11:42 | Link to Comment Anonymous
Sun, 09/20/2009 - 17:00 | Link to Comment SilverIsKing
SilverIsKing's picture

Only way out ---> Dollar devaluation

Sun, 09/20/2009 - 17:08 | Link to Comment Anonymous
Sun, 09/20/2009 - 17:03 | Link to Comment Anonymous
Sun, 09/20/2009 - 19:01 | Link to Comment Anonymous
Sun, 09/20/2009 - 19:08 | Link to Comment texpat
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?

Sun, 09/20/2009 - 19:13 | Link to Comment Gordon_Gekko
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.

Sun, 09/20/2009 - 19:13 | Link to Comment RobotTrader
RobotTrader's picture

Dow

 

 

Spooks

Nasdaq

Rusty

 

 

Copper

Gold

Silver

WTIC Crude

Gasoline

Natural Gas

Sun, 09/20/2009 - 22:32 | Link to Comment steve from virginia
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.

http://english.caijing.com.cn/2009-08-20/110227359.html

http://english.caijing.com.cn/2009-09-16/110251471.html

Sun, 09/20/2009 - 19:17 | Link to Comment Anonymous
Sun, 09/20/2009 - 21:15 | Link to Comment Anonymous
Sun, 09/20/2009 - 19:18 | Link to Comment Anonymous
Sun, 09/20/2009 - 19:20 | Link to Comment Anonymous
Sun, 09/20/2009 - 19:25 | Link to Comment Anonymous
Sun, 09/20/2009 - 19:27 | Link to Comment RobotTrader
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:

http://2.bp.blogspot.com/_pMscxxELHEg/SpVB63-XH3I/AAAAAAAAGN8/MkvZHcqMkig/s1600-h/NHSJuly2009Sales.jpg

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:

http://1.bp.blogspot.com/_pMscxxELHEg/So6q2YZnU1I/AAAAAAAAGKY/k9vx-Ry8mKE/s1600-h/EHSJuly2009Sales.jpg

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:



EIGHTY-FIVE PERCENT



...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
sitting)".

Sun, 09/20/2009 - 19:37 | Link to Comment Gordon_Gekko
Gordon_Gekko's picture

So, "Inflate or Die" it is. 

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

Sun, 09/20/2009 - 19:49 | Link to Comment djchill2
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.

Sun, 09/20/2009 - 20:40 | Link to Comment Village Idiot
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.

Sun, 09/20/2009 - 22:06 | Link to Comment Charley
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...

Sun, 09/20/2009 - 23:07 | Link to Comment Anonymous
Sun, 09/20/2009 - 23:08 | Link to Comment Anonymous
Sun, 09/20/2009 - 21:17 | Link to Comment Anonymous
Sun, 09/20/2009 - 21:12 | Link to Comment Anonymous
Sun, 09/20/2009 - 22:17 | Link to Comment D.O.D.
D.O.D.'s picture

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

--George Orwell

Sun, 09/20/2009 - 22:39 | Link to Comment Anonymous
Sun, 09/20/2009 - 22:51 | Link to Comment steve from virginia
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.

Mon, 09/21/2009 - 17:24 | Link to Comment Chumly
Chumly's picture

Entropy always wins!  Negative MPD was the main act in the center ring and it exited this circus a long time ago (relatively speaking).  The rest is a side show; The more the audience watches the remaining freak sideshows the more they'll realize they paid too much for their ticket.

And, ohhhhh the irony of the USG bureaucats now pursuing additional revenues in the form heavy fines from people selling cheap lead-laden crap from China at garage sales - cheap crap purchased with their cheap fiat crap!!!

 

Sun, 09/20/2009 - 23:33 | Link to Comment Miles Kendig
Miles Kendig's picture

Given all of this pump the junk action and all we have seen thus far are enfeebled markets and continuing implosion of key asset groups I am still reminded that the actions of the central banks, governments and banking systems is akin to a farmer from western Kansas attempting to keep their small family private plot alive during the dust bowl and numerous Black Blizzards. See this clip from about 6:30-7:15.  (With the action in the equities markets reminding me of the rabbit round-ups)

http://www.youtube.com/watch?v=sIEAJM-C3QE

And what we have coming is akin to this clip.

http://www.youtube.com/watch?v=0PX9CwwOx_U&feature=PlayList&p=54FC45CED2...

The fed can attempt to reinflate their way back to stability all they want.  The fact remains that there needs to be a result in the current circumstance similar to the decent into and recovery from the dust bowl.  Everything else is a waste of time and resources.

Sun, 09/20/2009 - 19:37 | Link to Comment Anonymous
Sun, 09/20/2009 - 19:53 | Link to Comment Anonymous
Sun, 09/20/2009 - 23:10 | Link to Comment Anonymous
Sun, 09/20/2009 - 19:58 | Link to Comment Anonymous
Sun, 09/20/2009 - 20:06 | Link to Comment Anonymous
Sun, 09/20/2009 - 20:07 | Link to Comment SWRichmond
SWRichmond's picture

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 that's not the worst of it. The worst of it is this: the core concepts of modern slavery, namely central banking and government control of the economy, are revealed as falsehoods tendered by idiots and liars. And this is the thing that must be avoided by them, at all costs, and the thing that we must clearly reveal.

Sun, 09/20/2009 - 23:12 | Link to Comment Anonymous
Sun, 09/20/2009 - 20:35 | Link to Comment Anonymous
Sun, 09/20/2009 - 23:17 | Link to Comment Anonymous
Sun, 09/20/2009 - 20:54 | Link to Comment Anonymous
Sun, 09/20/2009 - 21:48 | Link to Comment lookma
lookma's picture

"I find it hard to believe that hyper inflation is what they will choose."

They may not have a choice. A collapsing eocnomy and declining tax receipts may leave them no choice but to print.  Deflation is not an alternative to a hyperinflation, it is what precedes (financial and monetary collapse) and causes a hyperinflation.

Sun, 09/20/2009 - 22:58 | Link to Comment steve from virginia
steve from virginia's picture

"Oh crap, I just got long"

Don't worry about it, the S&P has a lot of legs left. No disasters tomorrow. (Mebbe next week)

"I find it hard to believe that hyper inflation is what they will choose."

They ('They') cannot 'chose' hyperinflation. A) there is no velocity and no fractional lending, B) there is no 'fuel' for hyperinflation, that is, savings for the government to steal and C) the dollar/yuan peg means any US inflation goes either to assets in the US or is exported to China. With large savings, China is a better candidate for hyperinflation than the US. This is one reason why the Chinese government is allowing citizens there to buy gold (from vending machines!).

Mebbe we should hire the Chinese government for a few weeks and send our government to ... Bolivia?

Mon, 09/21/2009 - 00:15 | Link to Comment lookma
lookma's picture

Inflation and hyperinflation, despite the similarity in their names, are quite different phenomena. 

Lending, velocity, savings, and the relative inflationary policies of other nations are no bar to hyperinflation, nor do they really bear on the issue. 

Hyperinflation = currency collapse resulting from efforts to stem an economic/financial collapse (i.e deflation).

Sun, 09/20/2009 - 23:21 | Link to Comment Anonymous
Sun, 09/20/2009 - 21:52 | Link to Comment Ned Zeppelin
Ned Zeppelin's picture

Well, if the Fed has been 50%  - an astonishing figure - and there is $100 billion + next week, and there's $15 billion left to spend, that leaves them $35b short.  Huh.  And don't talk about the next sale.

But of course, this has already been figured out.

 

Sun, 09/20/2009 - 23:25 | Link to Comment Anonymous
Sun, 09/20/2009 - 21:59 | Link to Comment Mansoor_H_Khan
Mansoor_H_Khan's picture

I know most readers of Zero Hedge don't believe there is a way to resolve this mess in an orderly manner without lots of chaos that is.  Following is my idea. I believe it is do-able and practical.  The main theme is to minimize chaos and transition the current financial system to something sustainable.

Here is my idea:

1)  We essentially need an orderly bankruptcy and liquidation of the United States'  financial system.

2)   I suggest we create a government owned bank and transfer all deposits of the private commercial banking system to the new government owned bank.   This "transfer" is really just new money creation.  This new money will be digital cash (electronic version of physical paper cash).   Very much like reserves at the FED. 

3)  Note that the plan will not create net new money since we will be destroying all deposits of the commercial banking system in the process.

4)  All assets of the commercial banking system will be transferred to the government and auctioned off in an orderly manner over the next 10 years.  The proceeds from the sale would go the United States treasury and not the commercial banks.   The assumption here is that commercial banks deserve nothing since the entire industry would have been most likely destroyed any way.  Even good banks would have been destroyed due to bank runs and defaults if the government had allowed the dominoes to fall.   Of course bank shareholders, bank bond holders and counter parties of bank derivatives would not receive anything.

5)  After the transfer FDIC protection will be removed for any private bank which wishes to remain in business or any new private depository institution or bank.  From that point on the government should make it absolutely clear that there will be no more bailouts and no more conversions.  This will discourage (but not completely eliminate) fractional reserve deposit banking and private money creation that results from pyramiding of government created money.  This will also limit debasement of the currency that results from fractional reserve deposit banking.   In fact, we can have "free banking" from that point on and not even have reserve requirements or capital requirements.   All depositors who use private banks will be fully at-risk.  The industry will have to set the interest rate high enough to attract depositors.

6)  The new government bank will act as an electronic "piggy bank" only.   All deposits will be 100% reserve and it will not make any loans.   Loan making will be left to the private banking system (with no deposit insurance or a possibility of a future bailout).  The new government owned bank exists only as a "safe" money storage and a payment clearing system so the public does not have to carry around physical paper cash to make purchases and pay bills.

7)  Of course this plan is not without pain or cost.  Cost of funds for banks and borrowers will probably rise as bank deposits are a source of very low cost money for the banks.   Nothing is free.   We are just exchanging higher cost of funds for removal of systemic failure risk.   Economically we are recognizing that when money is loaned there is always credit risk. 

8)  We are just separating the payment and clearing transaction system which is absolutely necessary for day-to-day commerce (no credit risk) from the loan banking and investment system (has credit risk).

 

 

 

 

Sun, 09/20/2009 - 23:22 | Link to Comment Anonymous
Sun, 09/20/2009 - 23:23 | Link to Comment Anonymous
Mon, 09/21/2009 - 05:09 | Link to Comment Anonymous
Mon, 09/21/2009 - 10:57 | Link to Comment Anonymous
Mon, 09/21/2009 - 10:58 | Link to Comment Anonymous
Sun, 09/20/2009 - 22:32 | Link to Comment Stevm30
Stevm30's picture

Oh yeah, but don't forget... deflation is going to push long term treasuries sky high.  I'm a buyer at these bargain prices... might consider selling when 30 year bonds are paying 50 bps...

Sun, 09/20/2009 - 23:26 | Link to Comment Anonymous
Sun, 09/20/2009 - 23:34 | Link to Comment Anonymous
Mon, 09/21/2009 - 00:19 | Link to Comment Anonymous
Mon, 09/21/2009 - 00:48 | Link to Comment Lionhead
Lionhead's picture

Now comes the Bloomberg response to ZH updated at 22:25:

http://www.bloomberg.com/apps/news?pid=20602007&sid=aKvtw723S1c0

"Investors outside the U.S. bought 43.1 percent of the $1.41 trillion of notes and bonds sold by the Treasury Department this year, compared with 27.1 percent of the $527 billion issued at this point in 2008, government figures show.

                                                     ***

Treasuries are “starting to look like even a better value with a weaker dollar,” said Dave Chappell, who manages $90 billion in London at Threadneedle Asset Management Ltd., and has been buying longer maturity U.S. government debt."

I'm going to cancel my cable Bloomberg subscription tomorrow. I've had enough of their pump 'n dump articles and cheerleading. Hit 'em in the bottom line folks...

Mon, 09/21/2009 - 05:07 | Link to Comment Anonymous
Mon, 09/21/2009 - 05:26 | Link to Comment Anonymous
Mon, 09/21/2009 - 05:28 | Link to Comment Anonymous
Mon, 09/21/2009 - 06:03 | Link to Comment Anonymous
Mon, 09/21/2009 - 07:59 | Link to Comment Mediocritas
Mediocritas's picture

That post from Rasputin is really great but....fuck it, it's hopeless to be a bear. I give up. No matter how shit a company is, no matter how much every fibre of my being says "short this pig", I can't win against a bunch of corrupt, all powerful sons-of-bitches who are intent on ruining the dollar, health of markets, democratic process, lives of future citizens, etc. Might as well just bail out of all US investment and forget about the entire country.

You win money printers, you win.

PS: fuck you.

Wed, 02/23/2011 - 02:35 | Link to Comment shawnlee
shawnlee's picture

It's important to remember that the FR buys outside of the auction process so statements like this can appear:

"Investors outside the U.S. bought 43.1 percent of the $1.41 trillion of notes and bonds sold by the Treasury Department this year, compared with 27.1 percent of the $527 billion issued at this point in 2008, government figures show."

http://www.bloomberg.com/apps/news?pid=20601087&sid=aKvtw723S1c0
, i liked your approach,

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Wed, 04/20/2011 - 05:56 | Link to Comment shawnlee
shawnlee's picture

It's important to remember that the FR buys outside of the auction process so statements like this can appear:"Investors outside the U.S. bought 43.1 percent of the $1.41 trillion of notes and bonds sold by the Treasury Department this year, compared with 27.1 percent of the $527 billion issued at this point in 2008, government figures show."vmware practice exam
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Mon, 05/23/2011 - 00:11 | Link to Comment kummar
kummar's picture

I have an idea. If all we care about is jacking up the nominal value of the indexes without regard to currency decay or the underlying fundamentals, why not price the indexes in ZIMBABWEAN DOLLARS. We can really have some fun then - think about it: Dow in the 100's of thousands - might even crack a millie;
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Tue, 05/31/2011 - 00:27 | Link to Comment kummar
kummar's picture

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sun1's picture

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Thu, 07/07/2011 - 01:44 | Link to Comment newdeals2
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Sun, 07/17/2011 - 13:15 | Link to Comment BillMardy
BillMardy's picture

It's interesting reading this article and remembering how things were before the economy collapsed - or just at the start of it, anyway!

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