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Federal Reserve Balance Sheet Update: Excess Reserves Surge, Fed Owns 37% More Treasurys Than China

Tyler Durden's picture





 

There are two key datapoints to present in this week's Fed balance sheet update: the surge in excess reserves, and the comparative Treasury holdings between the Fed and other foreign countries. But first the basics: the total Fed balance sheet hit a new all time record of $2.5 trillion. The increase was primarily driven by a $23 billion increase in Treasury holdings as of the week ended February 23 (so add another $5 billion for yesterday's POMO) to $1.214 trillion. With rates surging, QE Lite has been put on hibernation and there were no mortgage buybacks by the Fed in the past week: total MBS were $958 billion and Agency debt was also unchanged at $144 billion. The higher rates go, the less the QE Lite mandate of monetization meaning that the Fed will be continuously behind schedule in its combined QE2 expectation to buy up to $900 billion by the end of June. Yet most notably, as we touched upon yesterday, the Fed's reserves with banks surged by $73 billion in the past week, as more capital was reallocated from the unwinding SFP program. As noted previously, we expect the total bank reserves held with the Fed to jump from the current record $1.29 trillion to at least $1.7 trillion by June.

Full Fed Balance Sheet:

Tracking purchases of USTs coupled with dispositions of Agency debt, shows that while the first is accelerating, the second is slowing down dramatically:

Most notably is the dramatic and sudden surge in excess reserves:

And the old faithful chart comparing Fed holdings with those of formerly major foreign holders. The Fed now surpasses China in its Treasury holdings by 37%!

 


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Fri, 02/25/2011 - 10:24 | Link to Comment Hammer Time
Hammer Time's picture

balanced bitchez

Fri, 02/25/2011 - 11:11 | Link to Comment DaveyJones
DaveyJones's picture

China: why own their treasurys when you can own their treasury

Fri, 02/25/2011 - 13:28 | Link to Comment carbonmutant
carbonmutant's picture

Good one...

Fri, 02/25/2011 - 16:12 | Link to Comment asdasmos
asdasmos's picture

Damon Vickers, Nine Points Capital Management founder talks about QE2 and why he thinks bernanke is buying up the US debt

(Feb 25th 2011)

- http://www.youtube.com/watch?v=5WC9CpdeHF8

Fri, 02/25/2011 - 10:26 | Link to Comment NOTW777
NOTW777's picture

madoff ponzi

Fri, 02/25/2011 - 10:36 | Link to Comment Azannoth
Azannoth's picture

Madeoff is ROTL in prison over this

Would be funny if madoff defence looked like this

Judge: Mr. Madoff did you run the biggest ponzi schem of all time or not ?

Madoff: No I Did Not run the biggest ponzi scheme of all time !

Judge: we have evidence that you ran a 60B dollar ponzi scheme

Madoff: I did not say I didn't run a ponzi scheme. Just not the biggest Ben Shalom Bernanker has this honor!

Fri, 02/25/2011 - 10:40 | Link to Comment EscapeKey
EscapeKey's picture

Peter Schiff suggested Madoff become the Treasury Secretary.

http://www.youtube.com/watch?v=uJVMbAlPDrw

Fri, 02/25/2011 - 13:31 | Link to Comment carbonmutant
carbonmutant's picture

Madoff's crime was not that he ran a ponzi scheme but that it was not "Government Approved"

Fri, 02/25/2011 - 10:25 | Link to Comment 101 years and c...
101 years and counting's picture

add in the treasuries held by the Fed, via UK, and the Fed now owns 100% more than china.

Fri, 02/25/2011 - 10:25 | Link to Comment bankrupt JPM bu...
bankrupt JPM buy silver's picture

JUST IN ...Blythe is offering 30-50% premiums on the silver contracts to settle before monday!..Bring it you whore!  bring it!

 

www.silvergoldsilver.blogspot.com

Fri, 02/25/2011 - 10:36 | Link to Comment sudzee
sudzee's picture

Where is this so called "cash" coming from? Does JPM/HSBC have they're own printing presses?

Fri, 02/25/2011 - 10:41 | Link to Comment Azannoth
Azannoth's picture

Yes they do -

Chart of who "owns" the Federal Reserve

http://www.save-a-patriot.org/files/view/whofed.html

Fri, 02/25/2011 - 10:50 | Link to Comment bingaling
bingaling's picture

WB's plan worked . If I remember correctly this is how the blackmailing starts . Everyone will be jumping on this ship to collect their premiums or take delivery . 50% over spot is not a bad start . I will bet this money is rolled back in for the next few months of delivery . Every month the payoff will get bigger and bigger and the price of silver higher and higher .Not only that, on top of all of this there is a real physical demand.  Game over for Blythe .

Fri, 02/25/2011 - 11:00 | Link to Comment zero intelligence
zero intelligence's picture

That is so awesome.

Fri, 02/25/2011 - 11:30 | Link to Comment tmosley
tmosley's picture

Wait till Tuesday.

Fri, 02/25/2011 - 12:25 | Link to Comment eddiebe
eddiebe's picture

Please, who is blythe?

Fri, 02/25/2011 - 13:10 | Link to Comment jus_lite_reading
jus_lite_reading's picture

Heard a rumor about premiums 25% but 50%?

Does anyone need more reason to buy silver now?

Fri, 02/25/2011 - 10:27 | Link to Comment NOTW777
NOTW777's picture

"The higher rates go, the less the QE Lite mandate of monetization meaning that the Fed will be continuously behind schedule in its combined QE2 expectation to buy up to $900 billion by the end of June."

disgusting to talk in terms of being "behind" on fraud

Fri, 02/25/2011 - 10:28 | Link to Comment Ragnarok
Ragnarok's picture

What was the change in UK/China holdings?

Fri, 02/25/2011 - 10:28 | Link to Comment MolotovCockhead
MolotovCockhead's picture

Nice!! Print more fiat and nobody have to work for a living no more.

Fri, 02/25/2011 - 10:30 | Link to Comment BennyBoy
BennyBoy's picture

The FED's Number One!

 

(Soon to be the only one)

Fri, 02/25/2011 - 10:29 | Link to Comment Just Observing
Just Observing's picture

The Fed "owns".....what a FUCKING JOKE.....they digitize 'money' to 'pay' for paper issued by the Treasury.

FUCKING MONOPOLY (tm) GAME is more solid than this bullshit...at LEAST the "banker" has a limited amount of paper in his tray.

 

Fri, 02/25/2011 - 12:33 | Link to Comment Triggernometry
Triggernometry's picture

Please check the rules, I just played Monopoly (tm) last night with my son. The banker is allowed to "print" money by writing values on scraps of paper when the till runs dry; he/she is allowed to simply keep a ledger(digitizing) in the event additional paper is in short supply. So while the banker starts with a limited number of bills, there is no limit to how much money can be printed or digitized.

Silver, bitchez!!!

Fri, 02/25/2011 - 10:31 | Link to Comment Cognitive Dissonance
Cognitive Dissonance's picture

"To infinity.....and beyond."

Buzz Bernanke

Fri, 02/25/2011 - 10:41 | Link to Comment Hulk
Hulk's picture

Looks like we have been to infinity and we are now coming back...

Fri, 02/25/2011 - 10:51 | Link to Comment Doubleguns
Doubleguns's picture

Nope, just a fly by before we run out of gas.

Fri, 02/25/2011 - 11:05 | Link to Comment Cognitive Dissonance
Cognitive Dissonance's picture

I bet Boeing, after a suitable 2 or 3 year delay, will begin delivering those new tankers just in time for an aerial fill-up.

Fri, 02/25/2011 - 11:08 | Link to Comment A_MacLaren
A_MacLaren's picture

Can you ask Wm Banzai to photoshop in "The Bread's Face"?  I'd really enjoy that image.

Fri, 02/25/2011 - 11:38 | Link to Comment Cognitive Dissonance
Cognitive Dissonance's picture

William Banzai and Banzai7 labs are currently wall papering the lab's waiting room. But WB has informed me he will return just as so as the paste runs out or he gets sick of manual labor. Or he needs another iGag fix. :>)

Fri, 02/25/2011 - 12:22 | Link to Comment Hulk
Hulk's picture

Note to Banzai: don't eat the paste, it makes old women mad...

Fri, 02/25/2011 - 10:31 | Link to Comment Ancona
Ancona's picture

What is truly frightening here is that the rest of the world just whistles as they walk past the graveyard, ignoring the fact that we have a worse balance sheet than many third world backwater countries.

When the music stops, and it will, the fireworks are going to be epic, and the crash will be biblical.

Time to put on your big-boy pants and buckle up!

Fri, 02/25/2011 - 10:32 | Link to Comment John Law Lives
John Law Lives's picture

Maybe The Ben Bernank knows there is no other way to service $1.5 Trillion in annual budget deficits, so the Fed is locked into QE.

So much blatant deceit.

Fri, 02/25/2011 - 10:38 | Link to Comment Rogerwilco
Rogerwilco's picture

Yeah, all quiet on the western front. So much for that new Congress we elected to stop this bullshit.

Fri, 02/25/2011 - 10:36 | Link to Comment AldoHux_IV
AldoHux_IV's picture

Thus making the budget pitfalls that much easier to solve-- end the fed and you end the pains and slavery of debt.

Fri, 02/25/2011 - 10:42 | Link to Comment Milton Waddams
Milton Waddams's picture

Brilliant strategy by The Fed to calm concerns over the parabolic increase in debt. You see, it's all good, we now owe it to "ourselves".

If we can muster the political will to expand the debt to a quintillion or even sextillion (sextillion, that even sounds sexy- let's run with it), given QE33, the Fed will be proud owners of well over 99.99% of it. And none of it will even matter as "we owe it to ourselves".

Fri, 02/25/2011 - 14:04 | Link to Comment Charles Wilson
Charles Wilson's picture

"Economists across the length and breadth of the land were electrified by a theory of debt introduced in England by John Maynard Keynes. The politicians wrung their hands in gratitude. Depicting the intoxicating political consequences of Lord Keynes’s discovery, the wry cartoonist of the Washington Times Herald drew a memorable picture. In the center, sitting on a throne in front of a maypole, was a jubilant FDR, cigarette tilted up almost vertically, a grin on his face that stretched from ear to ear. Dancing about him in a circle, hands clasped together, their faces glowing with ecstasy, the braintrusters, vested in academic robes, sang the magical incantation, the great discovery of Lord Keynes: “WE OWE IT TO OURSELVES."

- William F. Buckley

 

CW

Fri, 02/25/2011 - 10:42 | Link to Comment pendragon
pendragon's picture

it is a complete myth that rates could rise without unwinding the UST holdings. there is no way they could stomach the mtm losses

Fri, 02/25/2011 - 10:51 | Link to Comment Greater Fool
Greater Fool's picture

What are you smoking? Fed doesn't care about mtm on its Treasuries, and indeed unwinding their "position" (which is largely a financial fiction) would itself be the cause of a catastrophic rise in rates.

Fri, 02/25/2011 - 10:44 | Link to Comment Boonie
Boonie's picture

Let's stop calling it a Ponzi.  And let's not call it a Madoff.  Too insulting to those con men.  Instead, it's a Bernanke.

Fri, 02/25/2011 - 10:54 | Link to Comment Rogerwilco
Rogerwilco's picture

After the dust settles, I don't expect we'll see any statues of Bernanke (or Greenspan) adorning public spaces. Their names will append discussions of the Tulip Mania, the Mississippi Company, and the South Sea Bubble.

Fri, 02/25/2011 - 11:01 | Link to Comment John Law Lives
John Law Lives's picture

<<< the Mississippi Company >>>

Now you're talking...

John Law Lives

Fri, 02/25/2011 - 11:23 | Link to Comment snowball777
snowball777's picture

+++++

Fri, 02/25/2011 - 10:45 | Link to Comment gwar5
gwar5's picture

Stiff the Fed.

If you stiff them, they will go.

Fri, 02/25/2011 - 10:47 | Link to Comment Bansters-in-my-...
Bansters-in-my- feces's picture

............"Federal"...????? Ya right. .............Reserves,????? Sure,what ever you say. Come now brethern Amricans,it's getting to be time to take back your Liberty.

 

Or your American Silver Eagle is full of shit.

Fri, 02/25/2011 - 10:46 | Link to Comment Doubleguns
Doubleguns's picture

When the Fed owns all the treasuries I say we just fold them up and toss in the circular file. Back to treasury bills, no more FRN's.

Fri, 02/25/2011 - 10:49 | Link to Comment alfred b.
alfred b.'s picture

   Court jester Bernanke could not care less and will continue QE to infinity simply because, tru January legislation, mafiose Geithner has got his back in perpetuity...and the buffoon is well aware of this fact; but not necessarily the guy paying for it...i.e.: the UStaxpayer!

Buy gold and silver now !!

Fri, 02/25/2011 - 10:49 | Link to Comment Oh regional Indian
Oh regional Indian's picture

very interesting thought popped into my head.
If a massive dollar devaluation is imminent (I do believe it is), why hoard cash or park it? Why not move it to hard assets? Any hard assets? How can anything be worse than their current condition? Both financial and non-financial institutions. Lot's of collateral still out there in the world.

Something smells.

ORI
http://aadivaahan.wordpress.com/2011/02/25/wisdom-for-warriors-7/

Fri, 02/25/2011 - 12:22 | Link to Comment MachoMan
MachoMan's picture

This same thought is ultimately what causes hyper inflation...  The loss of faith in the currency causes people to purchase anything of perceived value because it will ultimately be greater than zero...  obviously some items will carry vastly more perceived value (food, clothing, etc.).

I already purchase food in bulk, such as meat, in order to cut down on costs...  but, I am planning on increasing my bulk purchases and increasing my days of inventory...  it's time to invest in a good vacuum sealer and rock and roll.

Basically, I have a dollar ceiling in my bank accounts...  once it reaches a certain level, I either pay down debt or purchase hard assets...  depending on the way the hair on my ass parts that day...  I have also implemented a purchasing policy of hard assets every month...  so as to smooth out purchases rather than be subject to market conditions when the savings of cash met the ceiling...   this could be food...  could be anything...  again, whatever I'm feeling like.

Fri, 02/25/2011 - 10:49 | Link to Comment overmedicatedun...
overmedicatedundersexed's picture

you are never insane if your fellow inmates tell you , "your as right as rain".

china watches and wonders "can they be that incompetent? that insane?"

so the game is played the chinese and the world are tricked into thinking" this is a master plan by the US, that there is some real genius behind what is being done."

so they wait. to avoid getting sucked in to the USA's scheme..when all along they were seeing the actions of insane men.

Fri, 02/25/2011 - 11:03 | Link to Comment Rogerwilco
Rogerwilco's picture

The Chinese are just as bat-shit crazy, maybe even moreso. They are selling stuff at a loss to maintain employment growth and capacity utilization. Large American corporations are lapping it up to maintain their rosy earnings as China stomps the life out of what remains of small manufacturing businesses in the U.S.

Fri, 02/25/2011 - 11:37 | Link to Comment snowball777
snowball777's picture

As we watch these two economies implode, we have to ask: which side of the Chandrasekhar limit are we on and how much Au can we expect to be generated from the impending supernova?

 

Fri, 02/25/2011 - 11:49 | Link to Comment Snidley Whipsnae
Snidley Whipsnae's picture

Before China picked up the baton Japan was doing the same thing...Remember 'dumping'?

Fri, 02/25/2011 - 12:42 | Link to Comment Rogerwilco
Rogerwilco's picture

I do remember those times. The Japanese (MITI) didn't own Congress. The Japanese never sold us shit and claimed it was gold.

How many Chinese companies have factories over here that employ U.S. workers? Unlike the Japanese, the Chinese don't just want a piece of our market, their intent is to eradicate our productive capacity.

Fri, 02/25/2011 - 10:58 | Link to Comment More_sellers_th...
More_sellers_than_buyers's picture

OK I understand...what we are doing is nuts...but I'm a big boy and I understand that if the economy starts rolling again, this whole ponzi could work...it's a big economy and I get it. On paper if you can just push through to the other side of this morass none of this QE shit will matter. But what I cannot fathom is there is no back up plan! Rates are at zero...inflation is banging on the door(it's here allready, but we can't admit it because then it would be all over)the FED has no bullets left...There will never be any pick up in hiring because we don't manufacture shit.  On a macro level they are pursuing the opposite of every policy we need.  When is someone going to ask the FED what will you do when this doesn't work? I am not an idiot, it's not working and it won't ever work on the path we are on. What the hell can you tell my children about the country we are making.  This is the real deal folks...there is no coming back from the mess these academic fucktards have placed us in.  Now we are backed into a corner with no options but to declare insolvency and hand the next 3 generations a life of servitude and squalor.  Who the hell made the FED God? I'm pissed beyond words!

Fri, 02/25/2011 - 11:24 | Link to Comment Boonie
Boonie's picture

Unfortunately, your anger (our anger) is only at the tip of the proverbial iceberg.  It's going to get worse.

I believe there will be a return to some form of a "gold standard."  Whether that is "freegold" that FOFOA predicts or the similar "reference point gold" that Zoellick has been talking about or something else, I have no clue.  I doubt it's a return to a traditional gold standard, but it could be.  Regardless, I'm convinced that the Fed has an exit strategy.  Let's suspend disbelief for a moment and assume that there really is 8,000+ tonnes of gold in Fort Knox, West Point, and the Denver Mint.  That physical gold is owned by the US Treasury, not the Fed.  However, each of the Fed banks have as an asset on their balance sheets a gold certificate account.  That's a claim on that gold, but it's valued at the "legal standard value" of $42.2222/fine troy ounce of gold.  When the transition, managed or otherwise, from $US reserve currency status occurs and the gold revaluation is executed, the Fed is going to "offer" to forgive the US debt that it holds by exercising the claim to the US gold evidenced by the gold certificate accounts.  But, of course, it won't do so at $42.2222/fto.  It will only do so if, or more likely when, the US CONgress changes the "legal standard value" of our gold to the new revalued/devalued $US price/fto.  We all talk about the huge wealth transfer that's been occurring.  That hasn't happened yet.  What's been happening is just the most spectacular con ever attempted in world history.  The wealth transfer occurs when the Fed exercises the claims evidenced by the gold certificate accounts and uses its capture of the US political establishment to do so.  The Chinese, Japanese, Russians, Social Security Administration, etc. have no gold certificate accounts and they get repaid in hyper-inflated $US.  J6P American won't realize what's happened until afterwards and it will be sold as a matter of national security.   

Fri, 02/25/2011 - 11:29 | Link to Comment More_sellers_th...
More_sellers_than_buyers's picture

sweet merciful crap! Im still trying to fully understand your reply, but from what I can decipher it makes a lot of sense.  What other choice do we have? If this comes to fruition this will be a scary planet

Fri, 02/25/2011 - 14:28 | Link to Comment Ned Zeppelin
Ned Zeppelin's picture

Sounds like the script for Die Hard IV.

Fri, 02/25/2011 - 11:04 | Link to Comment OMG
OMG's picture

++++++++100000

 

We are so fucked

Fri, 02/25/2011 - 11:04 | Link to Comment Clockwork Orange
Clockwork Orange's picture

Silver.  Go, baby, go.

Fri, 02/25/2011 - 11:04 | Link to Comment RobotTrader
RobotTrader's picture

Another classic by Rasputin....

 

Ras realizes resistance is futile.
Rasputin - Fri, Feb 25, 2011 - 08:53 AM


As clearly demonstrated in these two articles from this morning's vast selection of insanity:

http://www.bloomberg.com/news/2011-02-25/fannie-mae-freddie-mac-seek-3-1-billion-amid-improved-earnings.html

http://online.wsj.com/article/SB10001424052748703905404576164774042487098.html

...absolutely NOTHING has changed (for the better, anyway) after
the so-called "Great Disintegration" that began nearly three years ago
in March, 2008.

In the first article, it is reported that Fannie and Freddie--those
bastions of fraud, waste and abuse--are now asking for an additional
three-billion fiatscos to continue their nefarious activities.

In the second article, the WSJ informs the proles that our
"watchdogs" (the CTFC and SEC) won't be going after the Pigmen who
helped cause the "Great Disintegration" because...um...these agencies
don't have enough funding.

(Ras Conclusion): Resistance is futile, folks. Here we are, a
third of a decade beyond the most stunning economic collapse ever
witnessed by mankind and we have the EXACT, SAME Alpha Thugs and Pigmen
in charge, running the EXACT, SAME schemes and scams.

Furthermore, the sheep remain just as clueless and willfully
ignorant, there has been ZERO reform to the monetary or financial
system, and--in fact--the Pigmen have been rewarded either with huge
bonuses, or awarded continued or higher political office (in the case of
Bernanke, Shelia Bair and Turbo Tim Geithner).

At this point, even the most thick-skulled, stubborn Rasputin has
to throw in the towel and admit utter defeat at the hands of these
goons.

And please, please, spare a Mad Monk any drivel along the lines of "Any minute now, we swear..."

Fri, 02/25/2011 - 11:32 | Link to Comment tmosley
tmosley's picture

It hasn't happened, therefore it can never happen.

Normalcy bias in action.

Fri, 02/25/2011 - 16:33 | Link to Comment asdasmos
asdasmos's picture

Marc Faber McAlvany Interview 23 February 2011.

 

 - http://www.youtube.com/watch?v=3uEbhPuoTx0

Fri, 02/25/2011 - 11:40 | Link to Comment snowball777
snowball777's picture

We outnumber them 1M : 1

Do they not bleed?

Fri, 02/25/2011 - 14:34 | Link to Comment faustian bargain
faustian bargain's picture

waah waah.

The wheat is being separated from the chaff.

Fri, 02/25/2011 - 11:20 | Link to Comment treasurefish
Fri, 02/25/2011 - 11:31 | Link to Comment THE DORK OF CORK
THE DORK OF CORK's picture

You should be glad that you have a central bank that does what it is told - come over to the ECBs den if you fancy some real austerity.

Fri, 02/25/2011 - 11:32 | Link to Comment treasurefish
treasurefish's picture

You must have been listening to CNBC when they thanked Ben for Democracy in the Middle East.  

 

http://www.cnbc.com//id/41778317

Fri, 02/25/2011 - 11:42 | Link to Comment THE DORK OF CORK
THE DORK OF CORK's picture

What comes first  the chicken or the egg ? well I have come to believe its the egg.

Congress sets the base money not the FED - the commercial banks fractionally multiply this money.

The main part of the malinvestment has come from the latter not the former - the damage has already been done - the FED has to do this if you believe the dollar is money.

QE is a symptom not the disease.

you can inflate against the metric of the dollar or deflate wages against the Euro as the ECB is doing.

Its better to inflate in a dollar system.

Fri, 02/25/2011 - 13:24 | Link to Comment Vagabond
Vagabond's picture

Well... scientists disagree, they say it was the chicken:

http://newsfeed.time.com/2010/07/14/the-chicken-and-the-egg-ancient-myst...

Fri, 02/25/2011 - 14:38 | Link to Comment faustian bargain
faustian bargain's picture

Pretty soon, we'll all be millionaires. Hopefully by then my house will be worth a billion, and I'll pay off the mortgage with lunch money.

Fri, 02/25/2011 - 15:13 | Link to Comment Rogerwilco
Rogerwilco's picture

You assume the mortgage lenders will honor your contract. Since the Fall of '08, there have been no rules for the financial elites. If it suits their purpose, your mortgage will be indexed in the name of "fairness". After the obligatory origination, recording, and service fees, you might have enough money left over to buy a jar of Tux. The anal bleeding should eventually heal itself.

Fri, 02/25/2011 - 14:17 | Link to Comment SRV - ES339
SRV - ES339's picture

You should be glad that you have a central bank that does what it is told

Yes, but unfortunately it's the Rothschild Cabal (who literally own the Fed) calling the shots... the rape of the middle / lower class is well underway in America, with the Tea Party element of the GOP (funded by the same Cabal) leading the way.

Fri, 02/25/2011 - 11:49 | Link to Comment shortus cynicus
shortus cynicus's picture

Not a big problem. Their charter ends in December 2012.

On 23. December 2012 US government, widely known for making wise decisions all the time, will not extend it.

This will make FRNs worthless, and in this way all FRN-denominated debts void and null.

So take credit and BTFD.

 

Fri, 02/25/2011 - 12:15 | Link to Comment Life of Illusion
Life of Illusion's picture

 

So where’s all China’s dollar reserves going now?

“REAL ASSETS” via CIC

Fri, 02/25/2011 - 12:16 | Link to Comment thechainrule
thechainrule's picture

can I get an xtranormal cartoon?

Fri, 02/25/2011 - 12:45 | Link to Comment davepowers
davepowers's picture

wow, reserves up over $200 bn in just the last three weeks.

 

questions for anybody who knows - what is the impact, if any, of expanding reserves on the FED funds markets (where banks borrow and loan excess reserves) and what is the resulting impact, if any, on stock and commodity speculation?

Fri, 02/25/2011 - 14:25 | Link to Comment greenrain
greenrain's picture

Why did the Fed sell treasuries in early 2008?

Fri, 02/25/2011 - 15:20 | Link to Comment Rogerwilco
Rogerwilco's picture

To drain liquidity -- the growth rate of M3 was running over 16% at the time. Then we found out who was swimming naked.

Fri, 02/25/2011 - 16:06 | Link to Comment greenrain
greenrain's picture

RW - I agree with you on the effect, but what I do not understand is why they chose to drain liquidity from a system that was in need of it?  The commercial paper market rate spreads were spiking in early 08'.  Why tighten policy in light of Bear Stearns?  Would that not pour ice water on a freezing credit market?

 

 

Fri, 02/25/2011 - 16:27 | Link to Comment Rogerwilco
Rogerwilco's picture

Because it was the right thing to do for the overall economy even if it hurt some of the biggest banks? Rules, ethics, and common sense hadn't yet been suspended? It took another six months before the Fed and Hank Paulson realized they could say and do anything they wanted, and no one would oppose them.

I clearly remember Bernanke testifying to Congress and stating that absent any specific regulation, he considered the Fed's powers to be open-ended. He basically dared Congress to stop him, and they did nothing.

Fri, 02/25/2011 - 16:41 | Link to Comment greenrain
greenrain's picture

Thanks for responding.  I am trying to put all the pieces together from a macro level.  How do you think buying treasuries, rather than selling them now, plays into getting M3 growing?  TD talks a lot about how hard the Fed is trying to get M3 / shadow banking system growing again.  Do you think that getting M3 growing now is their goal whereas selling treasuries in 08' was aimed at slowing it down? 

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