It's Official: Fed Is Now Second Largest Holder Of US Treasury Bonds

Tyler Durden's picture

Today's POMO is over: at $2.069 billion, the operation was right in line with our expectations, coming in at a lofty 12.16 submitted to accepted ratio, as investors apparently are not too crazy about the yield perspective of the 4 2013 CUSIPs that were repruchased. However, what is far more important is that with holdings of $821.1 billion, the Fed is now officially the second largest holder of US Treasurys. Next up- China.

While the official breakdown will likely be a few weeks late in coming, here is the math:

Fed holdings as of September 30: $811,669


Total: $821.128 Billion, which compares to Japan total $821.0 Billion as of July 2010

Congratulations, America: your central bank is just $25 billion away from being the Treasury's largest creditor, and thus able to dominate any and all future debt restructuring negotiations with what is, essentially, itself.

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Cognitive Dissonance's picture

Thank God. Now they can get down to the really serious business of taking over first place.

Second place is just the first loser.

BTW, when is the next round of the POMO pump starting up? I keep the schedule taped to my monitor next to my Ben Bernanke pinup.

ShankyS's picture

The next schedule is released on 10/13, but not so sure how they will do that before FOMC on 11/03, but I'm sure they will find a way. This is fucking stupid.

aerojet's picture

I believe Denninger is one person who predicted that the Fed would end up owning all of the treasuries.  I'm sure he ripped the idea off of someone else, though.

A Nanny Moose's picture

Almost only counts in horse shoes, hand grenades, and Hellfire missiles fired near weddings.

Dr. Engali's picture

I wrote myself a loan last week to buy a big screen tv. Now the question is do I pay myself back or default?

Cognitive Dissonance's picture


Declare a moratorium on payments and foreclosures and call it a day. Then kick back in front of the big screen and curse at all those bankstas trying to foreclose on those bums who've been living mortgage/rent free for years.

Karma baby. You really can make your own. :>)

Dr. Engali's picture

Thanks for all your input. I think I will plop my ass down, slide my hands down my pants, watch Judge Judy ,collect food stamps and let my neighbor pay me back. 

Cognitive Dissonance's picture

I think I will plop my ass down, slide my hands down my pants, watch Judge Judy, collect food stamps and let my neighbor pay me back. 

Multi tasking bitches.

Clark_Griswold Hedge Mnger's picture

depends on whether you Titled it and if you can trust yourself for not committing fraud (to yourself), but blame it on Waddle.



lol CD you beat me too it!

Cognitive Dissonance's picture

lol CD you beat me too it!

Nothing much to do this morning so I decided to spam ZH. :>)

Clark_Griswold Hedge Mnger's picture

God I love this site!

the entertainment of the posts and comments is about the only thing keeping my sanity intact in this insane world.

Good to know there are still a few cynical types out there besides me.

fuu's picture

This isn't cynical, this is reality.

DavidC's picture

Spot on!


Sudden Debt's picture

the entertainment of the posts and comments is about the only thing keeping my sanity intact in this insane world.

This site and that little box of Xanax you mean? :)

aerojet's picture

Yeah, I don't get how the circle jerk can keep going on and on.  Maybe there is a quantum-mechanical answer?  The Fed can pull capital in from other parallel dimensions that are currently more prosperous than our own?

Cognitive Dissonance's picture

It works the same way watching a movie works for you, even when you're watched it before. You simply suspend disbelief in order to enjoy yourself.

The economic system and its participants simply suspend disbelief in order to protect themselves. They're all in this together now. The first one who tries to bring sanity to the surface will be snuffed out by the others. Thus they all live together in this fantasy world or they all hang from the same fiat tree.

The knowledge of certain death coming in the morning brings wonderful clarity of purpose the night before.

mike5885's picture

"The knowledge of certain death coming in the morning brings wonderful clarity of purpose the night before."


wow, so scary, but oh so true

A Nanny Moose's picture

Dispense with the formalities, just hire some thugs to come teach yourself a lesson.

No Mas's picture

Curious for some perspective.

How much federal debt has the Federal Reserve held in the past?  What was the impact?

Astute Investor's picture

Gentlemen, there are NO points for second place!


Old School's picture

According to Geithner, the US will not monetize their debt. He's lying thru his teeth!

carbonmutant's picture

That seems to be the MO for the entire current administration.

Geoff-UK's picture

"That seems to be the MO for the entire United States city, county, state, and federal governments, both Democrats and Republicans."

There, I fixed it for you.

carbonmutant's picture

Only one of them is in control of the WH and the Congress...

Geoff-UK's picture

Au contraire, mon frere:  George Bush approved TARP-1 on 3 Oct 2008, after ADMITTING he was abandoning his principles.  Whatever those were.

Both parties are worthless in protecting the middle class.

mynhair's picture

Get your 11K hats ready - here it comes.

HarryWanger's picture

They're desperately trying to pump to another "psychologically important" number. How silly.

MrVincent's picture

Just in time for the elections!

Cognitive Dissonance's picture

Sorta like a economic penis pump. Only better. Yeah, that's the ticket.

Not that I have any direct experience mind.

firstdivision's picture

10 year is sitting pretty low at 2.38% right now.  Soon it will be a yeild line and not a curve.  Those that bet on flattners are banking it.

Clark_Griswold Hedge Mnger's picture

I just scrolled through a bunch of 10/20 year charts, and just about everything is punching through new all time highs, slw, gdx etc, name your favorites....  explain to me how they claim its a bubble? I can't even type it with a straight face.  as the dollar, euro, yen all of it is in a race to the bottom.

The hard part is actually pulling the trigger to take some funds off the table to book some profits, but with uncle Benny printing like there's no tomorrow, all pomos doing is adding higher digits in my returns.


aerojet's picture

Sure, what could possibly go wrong?  The Fed is blowing the mother of all bubbles, the last bubble, as it were.

mike5885's picture

I can hear the rivets on the cabin starting to pop

hedgeless_horseman's picture

When it turns it will be the mother of all yield rallies.

Clark_Griswold Hedge Mnger's picture


"Goldman Sachs Say U.S. Ecomony May be 'Fairly Bad'"

No Shit!

Ya Think?

You guys get bonuses for that?

S474NtheD3v1L's picture

quit yer bitchin

the fed is saving us, from ourselves

Ben Bernanke, a TRUE AMERICAN HERO, i salute you

cowdiddly's picture

timmaay. Push the yield curve down, down, down. Then make the bangstas reset every outstanding mortgage still left to <3%. Then we return to the housing based economy we so longingly wished for. My, My what a PUTZ> 

curbyourrisk's picture is a novel idea.


What happens if the Treasury strategically defaults on all the debt bought by the FED???  Just those bought by the FED.  Seriouslly  what would happen???? 


Was this the plan all along????  When I joked about it last was considered pure tin foil.....

Pinky's picture

Not a novel or tinfoily idea at all!  I've suspected this was the plan since about 2007.

See here:  The Fed-Treas-Goldman-JPM-etc. Nexus operates as a single unit.  They might as well:  Look at the shareholders and stakeholders and realize . . . holy shit, they're the same people! They're going to owe THEMSELVES!

Next on the menu:  Some kind of cyber incident that, whoops, erases the paper trail.  You heard it here first, erhm, second, erhm . . . Road to Roota, anyone?

Whatta's picture

OK, so what is the conclusion of that scenario? Debt forgiveness since there never was "real" debt in the first place? Larger boni (plural of bonus) for all involved? They can't give themselves taxpayer bailouts cuz taxpayers are now on the Federal Endangered Species list and can't be harmed.

Pinky's picture

See this from the perspective of a self described pirate hero (not me because I'm nobody). You don't have to buy it; it's just a mental exercise.

Once the Fed gets as close to 100% as it can reasonably get, the Fed implodes. Matter meets antimatter and POOF! US debt goes bye bye. Fed sez "Thank you veddymush," and takes a bow.  It transforms itself into a new entity; let's call it the Hot Fudge Sunday because, really, I have no idea.

What would be the fallout? Continuing with the exercise . . .

For once the Little Guys are only half-screwed, instead of fully screwed, by the Rothschild Repo Man who had REALLY wanted, very very badly, to hoover up US assets on the cheap. The Little Guys will get to keep their homes because of the securitization ponzi scam.  Their 401Ks will continue to grow thanks to the "plunge protection team." They will get "jobs:" The government will pay them to dig holes and fill them up until the economy recovers.  Their credit card balances will be written off by the banks, who will be bailed out by "Benny and the Inkjets" (PS: I'm starting a band, and thats what I'm gonna call it).

Everyone who shorts the US dollar or stock market will (continue to) be shanked until they get the message: NEVER. EVER. SHORT. THE. UNITED. STATESOFFUCKINGAMERICA!

The pirates will be recast as pirate-heroes who were really doing Gods Work after all. All will be forgiven. Madoff will be pardoned: He was a crook, but he was "our crook" (don't barf, please, this is an exercise). 

I've had an inkling about this for a long time, once I discovered the derivatives were no recourse and that US mortgage paperwork was, in many cases, "lost" along with the creation of said derivatives, aaaaand . . . the SEC was complicit.

Well wouldja look at that: The long-planned, IMF-economic-hitman-let's-do-this-like-we-did-Argentina-styled takedown of the US will have been officially thwarted by a team of Randian banksters and their robot armies. And for what might be the first time ever, a group of people will have succeeded taking down the Master's house, from inside the house, using the master's tools.

Kind of brilliant, actually. And THAT is why they are claiming that the recession is "over." Not that it is ("bitch, please"), but that they're at the point where they really do think they can pull this off. Right now Mr. Greenspan, who never really stopped being an Objectivist after all, is probably sitting in his lair wringing his hands and hissing "Exxxxcelllent . . ."

Of course, I could be totally wrong.

Or, I could be right, and it could go horribly wrong.


Here’s my GUESS on what would happen if the US Treasury defaulted on the debt that it owns to the Federal Reserve System Inc.:

Nothing at all.

My theory is that the Fed determines the (global) supply of FRNs when it buys assets with newly created money that did not previously exist. When it buys assets of any sort the FRN supply goes up and because the Fed seldom if ever sells assets the money supply is always expanding the only variable being the rate of expansion.

If the Treasury defaulted on its IOUs to the Fed it wouldn’t mean squat because if the Fed subsequently wanted to buy anything it would just create more FRNs. The Fed doesn’t need its assets. It doesn’t make the least difference if the Fed has tons of assets or none at all, and in any case most of its “assets“ are vaporous bullshit like Treasury debt and MBS. If the Fed had any gold I’d see things a lot differently. All I watch is how much FRN money is created by the Fed buying “assets.” Once these FRNs used to buy assets go flying out the Fed door they have to be honored because they are legal tender but … the amount of Fed “assets“ in the Fed‘s book at any given time doesn‘t mean squat.

As you can see from the following link Fed assets exploded in 2008 and thus the global supply of FRNs likewise exploded and FRN holders started buying up everything in site. Hence the explosion in the price of all assets except (in America) labor and housing, the two assets/income streams of the Amero-peasants.

My Guess is that the Fed and politicians will continue to expand the FRN supply until the Chinese etc. stop taking them. Then a tsunami of FRNs will come back to America, they only place where they are legal tender. Prices of everything will explode (except for wages and housing) especially imported stuff or stuff dependent on imported inputs like food.

By the way, my theory/guess basically draws no important distinction between FRNs and Treasury IOUs denominated in FRNs. An FRN is basically a note (for peasants) that pays no interest. (That’s why it pays no interest, it’s for peasants.) Treasury IOUs are basically legal tender for aristocrats (that’s why they pay interest).

As for derivatives and other funny money my guess is that the Fed/politicians will continue to buy them up (and increasing the FRN supply) until the world stops taking our paper. Because there is so much of this funny money most will not be bought up before the GREAT COLLAPSE so if you have any paper of any sort bail now.

Because of this view of the world FRN supply I put everything into gold/silver and have a year’s supply of canned food which I constantly expand.

I am a retired computer programmer and have no formal training in economics and certainly no PhD from a “good” university.

mike5885's picture

they dump the bill on  all of us and our children, then run for re-election

reddragonleo's picture

Kinda like playing monopoly with yourself, as you lend money to yourself, and borrow money from yourself... or is it more like musical chairs?

Sudden Debt's picture

You forgot the laser printer that prints 1000.000$ bills. But for the rest you nailed the monopoly game as it should be played :)