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Federal Reserve Balance Sheet Update: Week Of September 29
Probably the most interesting thing in this week's Fed balance sheet update is that Treasurys held by the Fed are now $812 billion, an increase of $7 billion from the week before, which those who follow the FRBNY's almost daily POMO liquidity explosion know all too well. Indicatively, Japan owns $821 billion and China, $847 billion. 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. Another notable item: Fed excess reserves were at $981 billion, a decline from $1.01 trillion at the beginning of the month, but most notably, in the past month this number hit a year low of $932 billion on September 15. One wonders just what securities the banks were buying up with these reserves? Keep in mind the stock market closed essentially at the level it hit on September 20, making one wonder just how much of a factor the nearly $80 billion decline in bank excess reserves in the first two weeks of the month may have been.
- Securities
held outright: $2,044 billion, a decline of $7 billion from the week prior.- Total Treasury holdings increased
from $805 billion to $812 billion, the reason for the increase being of course the continuing UST purchasing via QE Lite. The Fed has bought $25 billion in Treasuries in September - MBS holdings declined by $13 billion to $1.08 trillion, meaning that as we expected the level of prepaying is accelerating, as this was the biggest one week decline in MBS notional outstanding on the Fed's balance sheet since QE1 began
- Agency holdings were also flat at $154 billion.
- Total Treasury holdings increased
- Net
borrowings: declined by $7 billion at
$53 billion. - Float,
liquidity
swaps, Maiden Lane and other assets: $187
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 $28.4
billion. Maiden Lane II was at $15.8 billion, Maiden Lane III at $23 billion while AIA Aurora was $25.7
billion. - The monetary base was $1.958 trillion (more on M2 later)
- Reserve balances with banks: $982 billion, a slight increase of $2 billion from the prior week.
- Foreign holdings of USTs and MBS at a new all time high of $3.23 trillion, a slight increase of just under $2 billion W/W.
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Treasury cash deposits and withdrawals account for most of the big weekly swings in reserves. Treasury withdrew $57b in cash from its general account at the Fed, between Sept 15 and 29. Answers the question about how reserves got from 932 to 981 in two weeks. Basically it means the government spent more than it collected/borrowed.
Yes, Treasury cannot keep up with peak outflows. ARRA for grants has barely moved in three months during the summer of recovery. Treasury needs to administer the huge outflows without outrunning their buffer.
My impression is that Treasury has prioritized all state aid programs that fund government directly or offset entitlement costs like Medicaid. Avoiding a possible state default is priority number one. Especially, before the end of the fiscal year. Treasury simply cannot administer all of the stimulus programs, ongoing and new, in a timely fashion.
I shudder to think of the potential for fraud.
Mark Beck
Graph looks like a cresting tsunami.
When that fat-ass, red MBS section pancakes, mos def find high-ground.
How is it going to pancake though, without a mark to market requirement? Can't they just decree that those MBS's are at par forever?
It pancakes because the yields fall enough that the people who can will refinance the loans. The procedes then do not go back into MBS but into Treasuries.
I'll grant you a bank can hold their breath longer than I, but they can't sell the toxics without fessing up on the dismal valuation, que no?
Good point! And the US middle class is building sand castles on the beach.
Yeah, when is someone gonna drain that big, red, hemotoma??
so when ben goes to sleep at night he wonders, am I running the biggest ponzi scheme the world has ever known
It's all funny money so what's the big deal...
-Backed by the world's largest military-
Never underestimate the G-man when he's backed in a corner.....
"All your gold are belong to us"
Dollars...backed by the military...which is funded in dollars. Kindof circular, no? Sortof like the motion of water when the toilet is flushed.
Hold physical gold & silver.
Now for your PSA
The collapse and recovery of trade after a crisisSeptember 30, 2010
A new IMF study has found that after a banking crisis, countries’ imports tend to fall substantially and stay depressed for the next five years. In this interview, the IMF’s Abdul Abiad discusses the implications for advanced economies and their trad
http://www.imf.org/external/mmedia/view.aspx?vid=621060227001
We now resume to your regularly scheduled ZH ministry of truth program.
Tyler & staff.. Great job today
"Foreign holdings of USTs and MBS at a new all time high of $3.23 trillion, a slight increase of just under $2 billion W/W."
Full steam ahead.
This is the chart that when I see it I just think, this can't end well. It just screams imbalance.
"this can't end well..." That's what I thought when my grandfather started to date a 23 year old stripper......
This really can't end well....
So - interesting that the combination of MBS and Treasuries went up. I thought the statement from a few weeks ago was that the Fed was only going to use the funds from maturing securities to buy treasuries (thus leaving the combination of the two flat). Apparently that's not the case.
So where did the Fed get the $812 billion to buy the treasuries? Did they just print them?
Mortgage payments.
The printer soon to own all the printed... I wonder, as I do... how some Americans' hold out hope that Obama just needs more time... for his policies. But lurking behind the curtain is Oz... all knowing... and his name is congress.
One press to rule them all, and in the dark pool, bind them!
Take two 'Colapsin' and the swelling should go down (a lot faster than anyone bargains for!)
POMO weak today no? Overwhelmed by profit taking in commodities?
Well if the Fed can just print up $812 odd billion I bet that makes the Japanese & Chinese feel a bit stupid. I mean their citizens actually had to work like crazy and produce stuff to earn that money to buy the treasuries their Government owns. And then your Fed just pushes a button or two to print the same amount. They must be wondering why they bother. It's almost like your Fed has invented a perpetual motion machine. You know that it breaks the laws of physics but somehow they're getting away with it.
"Fed has invented a perpetual motion machine"
http://en.wikipedia.org/wiki/Second_law_of_thermodynamics
This is really a kind of an "Oh shit!" moment.... when it becomes crystal clear the Fed is just another international player with it's own self interest.
I guess this means the Fed and China will have to gang up and go to war against the Americans to get their money. The Japanese still owe for WWII, so they're still cool.
I suppose this is what all the printing of money is about and we can expect more of it. Stealing money all peaceful-like through debasement, so no one gets hurt and all that.
This a fucking Ponzi scheme to end all others!!! All done under the guise of creating economic stability, not knowing the havoc they're actually creating in the process.
Excuse the ignorance, but the balance sheet is relatively flat. How is this increasing liquidity?
Who are the players and what does the transfer from MBS to Treasuries look like?
Liquidity is not a simple function of the size of the Fed balance sheet. Liquidity has more to do with volumes of commercial bank money and money surrogates. The composition of liquidity differs from market to market, eg from Treasuries to corporate bonds to equities to mortgages.
So what the Fed is doing now is withdrawing (or accepting the natural deflation of) some of the MBS liquidity that's more important to mortgages and redirecting that into Treasuries, which displaces the usual private net buyers of Treasuries into other markets.
The transfer looks like this: MBSs are repaid, partly by Treasury backstopping GSE/agency guarantees of defaulted mortgages; partly by household repayment of mortgages, down payment on new mortgages, cash-in refis, and cash purchases of homes; partly by new issues of MBS (I don't count private mortgage financing as that's shrinking overall). The Fed takes the money from repaid MBS and buys Treasuries from primary dealers, at which point the money becomes part of a huge untraceable pool. But Fed buying of Treasuries is about 20% of net issuance, so private net purchases of Treasuries had to be reduced by an equal amount. Most traditional net buyers of Treasuries - eg foreign central banks, pension funds - have constant inflows that they are generally reluctant to hold as cash, so when they reduce net buying of Treasuries they increase net buying of other financial assets, displacing yet others on up the risk curve.
But I don't think any of the above is very important to the current ramp in equity markets, personally. Equity market liquidity appears to be coming from corporate bonds (redirected to buybacks and dividends that are then re-invested), hedge funds and increased use of margin.
super, I appreciate the clear explanation!
yeah interesting the recent ramp of the equity market was shortly after hedge funds increased leverage
Just have to do this comparison after following these balance sheet updates.
Stewie griffith a.k.a. the Fed.
http://www.youtube.com/watch?v=_nLN6bQJQn4
This chart looks like a old geographical slice of Mount St. Helen's.