Federal Reserve Balance Sheet Update: Week Of October 6 - We Are Number 2!

Tyler Durden's picture

Last week, during our regular scheduled Fed balance sheet update, we said "We
believe that within one week the Fed will surpass Japan as the second
largest holder of Treasurys, and China, the current top holder, in just
over a month
." Ww were right: as of Wednesday, the Fed disclosed it held $819.1 billion in US Treasurys. That excludes yesterday's $2.1 billion POMO which settled today, which does in fact bring the total to above the $821 billion held by Japan as of the end of July. With only $25 billion to go, and a rate of monetization of about $8 billion per week (and likely faster now that prepays are accelerating), we believe the Fed will be #1 by the mid-terms, just in time for the QE2 party to really blast things off. Aside from this there was little notable in the weekly balance sheet update: bank reserves increased by $16 billion in the past week, as Primary Dealers added to their purchasing capacity post the end of quarter window dressing.

  • Securities
    held outright: $2,052 billion, an increase of $7 billion from the week prior.
    • Total Treasury holdings increased
      from $812 billion to $819 billion, the reason for the increase being of course the continuing UST purchasing via QE Lite, soon to become QE2.
    • MBS holdings were completely unchanged at 1.079 trillion. The treasury purchases in the week were a catch up from the $13 trillion in prepays in the past week.
    • Agency holdings were also flat at $154 billion.
  • Net
    borrowings: declined by $3 billion at
    $50 billion.
  • Float,
    swaps, Maiden Lane and other assets: $188
    billion, an increase of $1 billion. FX liquidity swaps are at $61
    million as the same bank that is experiencing a USD funding crisis
    continues to have no EURIBOR/LIBOR acces. The "value" of Maiden
    Lane I was at $28.5
    billion. Maiden Lane II was at $15.7 billion, Maiden Lane III at $22.8 billion while AIA Aurora was $26
  • The monetary base was $1.943 trillion (more on M1 and M2 later)
  • Reserve balances with banks: $998 billion, an increase of $16 billion from the prior week.
  • Foreign holdings of USTs and MBS at a new all time high of $3.25 trillion, an increase of $15 billion W/W.

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ghostfaceinvestah's picture

Yeah, but Bernanke isn't monetizing the debt, he said so.

MarketTruth's picture

You are 100% right, i remember personally hearing him say that to congress on National TV.

TraderTimm's picture

And when we're number one....


But that's okay, as long as they default to themselves and make it all go 'away' it will be fine, right?


goldmiddelfinger's picture

We'll be nummer one on the POMO after next

Goldtoothchimp09's picture

The stock market tops tomorrow!

I think tomorrow will mark the end of Minor 2. So many factors line up. We had time symmetry A=C yesterday. We have price symmetry (with a throw over for C tomorrow i predict). We have astro (October 8) see this - http://mysquigglylines.blogspot.com/
While news doesn't make the market -- this foreclosure mess will become a big issue for psychology. Art Cashin made that point - and he is wise beyond belief. It all points to tomorrow. I hope the Dow is up 150 pts. plus in the afternoon!! Perfect short entry -- i feel it in my bones!

frankTHE COIN's picture

USA! USA! USA! That gold medal is within reach.

SloSquez's picture

A circle jerk can work wonders until you get bored.

goldmiddelfinger's picture

When will somebody take a hit? A loss? A charge?


Break up the Yankees

Delenda Est Carthago

RobotTrader's picture

I suppose the Fed can buy up all it wants.

To infinity.

Because, who is going to audit the Fed?


And why worry about our credit rating?  It is already the defacto standard for AAA already.

Besides, the slightest whiff of a selloff in equities will merely drive even more people into bonds, pushing the prices even higher.  Making them even more coveted.

Never in a million years would I have dreamed that a "Perpetual Motion Machine" could actually work.

It is a true economic miracle.

AUD's picture

"It is a true economic miracle."

Or maybe an example of the collective stupidity of the human race.

Foreign holdings at a new record! The merry-go-round spins ever faster.

frankTHE COIN's picture

Robo,quick ques.  i cant remember the right connections. I know that on ZH we found out that the Fed faces an Audit soon over Tarp/Crisis matters.

Can there be any spillover from that if an audit indeed happens ?

HarryWanger's picture

As a kid in the 70's, I would watch the news and hear all of the doom about inflation, etc. I remember asking my dad, "why don't they just keep printing more money?" Of course he gave me an economic lecture but I was never satisfied with the answer. Still am not.

Robo, I realize you are being somewhat sarcastic but there is a modicum of truth in that. Here we are 35 years later and we're still printing. 

nmewn's picture

"It is a true economic miracle."

I don't think so...they've been caught stealin ;-)


Withdrawn Sanction's picture

"....perpetual motion machine."

It sure looks like one from this distance doesnt it?  I realize it was said tongue in cheek, but there's also a grain of truth in your observation, in your incredulity at such an absurdity.

So let me pose the question differently:  What's the fundamental flaw in their scheme?  Why is it necessarily bound to fail?  The answer's as obvious as the nose on your face.

Sun Tsu's picture

when dollars in reserve are no longer redeemable....

SteveNYC's picture

I do believe there is sarcasm in your post Robo, and it is well received. Unfortunately for the Fed, all things must end. In this case, I think it will end in a very, very ugly manner. I don't think the future is bright for Bernanke & Co.

Minion's picture

You seem too smart to be serious.  FED is getting checked by the price of gold, silver, oil and all ag commodities.  The public will soon react.......

His Dudeness's picture

Mr. Robotrader,

Can you share how you post charts/pictures on this forum? Do you have an add-on? I'm stumped!

chet's picture

Is it just me, or is the total amount of treasuries roughly what it was during the pre-crisis times?

To me, the overall size of the balance sheet, and particularly the MBS section is what is alarming.

Also, if indeed the amount of treasuries hasn't grown that much, why are we now number 2?  Is Japan selling treasuries?

StychoKiller's picture

Until someone sticks a drainage tube in that big, red hematoma, the patient (the Economy) is going remain comatose!  Wait till the various state A.G.s start ripping off the bandages covering the foreclosure mess -- MAJOR AORTA DISECTION AHEAD!

gwar5's picture

You were right and hope you do the two-fer with QE II, which has been hyped everywhere there is no escape from it. I think the market short call on the QE II was great no matter what happens it's money.

nmewn's picture

From Jessie...


Say...youz guyz wouldn't be playin boat zides of da street here wouldcha? Youz sposed ta be keepin a lid on da silver price, ya know? Dis is a nize place ya got heeya...be a shame if sumpin wuz to happen to it. ;-)

assumptionblindness's picture

Here are two words that we may never hear again in our lifetimes - Exit Strategy

SayTabserb's picture

Is it possible to break out a separate value for the Red Roof Inn component? Since I'm an owner, I'd like a shot at the management trainee program.

Diggintunnels's picture

LOL, Why aim so high (Mr. high falutin managment trainee). With our new leaders in power, they will merely take care of all of us like children.  Doesn't that sound so very pleasant?  Obama can personally take care of all of us "From his stash".  I guess his "stash" is called the FED. 

Kiwi Pete's picture

So what does the Fed do with all these Treasuries? Why don't they redeem them for cash and buy up all the under-water homes. Problem solved!

StychoKiller's picture

I'm sure the Fed would love an easy solution right about now -- if they could just jump over all the paint from the corner to the door, they'd be home free!

Diggintunnels's picture

Perhaps you underestimate the genius of our supreme leader Ben Bernanke.  You see, he merely has to figure out how to levitate over all that fresh paint.  I'm sure we can prove how that works on paper.  Like any good economist, let's start with an assumption:

Assumption 1:  Gravity does not exist...

hooligan2009's picture

Seems like the Fed is our white knight and simply cancels the debt it has bought by not requiring any payment from the tax payer (via the Treasury). I knew it was good for something...all hail the Fed!

ub40onlyonce's picture

Welcome to the Fed having monetized the 29% default rate of the 5 Trillion dollars that the government mandated Freddie and Fannie lend to Jimmy Crack Corn at the behest of the liberal juggernaut's Community Reinvestment Act (CRA) started back in the 70s.  Long committed to excess, mediocrity and general meddling in private enterprise.

And where do we go from here
Which is the way that's clear

Still looking for that blue jean, baby queen
Prettiest girl I ever seen
See her shake on the movie screen, Jimmy Dean
Jimmy Dean
Rock on
Rock on
Rock on

Diggintunnels's picture

Unlike our supreme being Ben Bernanke, I have trouble envisioning what a trillion dollars looks like, please see this illustration:


Hephasteus's picture

Isn't it amazing how 2.1 trillion on the left hand side right here in america, turns into 3.3 trillion in the magical dimension of

Imma Mother Fucker

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