Presenting The Fed's Balance Sheet Through 2012 - Fed Will Surpass China As Top Holder Of US Debt By The End Of The Month

Tyler Durden's picture

As is all too well known by now, starting over the next few days, the Fed will commence purchasing $75 billion in Treasury securities monthly until the end of June, and will buy an additional $35 billion in Treasurys to make up for declining holdings of MBS (due to repurchases). We still believe that as a result of the imminent drop in rates (especially those around the curve belly), as we have claimed for over a month, the feedback loop that will be created will result in a far greater repurchase frequency of MBS securities over the next 8 months, and we would not be surprised if at some point in Q2 2011, the Fed is buying $150 billion in Treasurys monthly. Since nobody will believe this until it is actually confirmed by the H.4.1., we will leave this topic alone for the time being. And after all its will "only" mean a rotation of Fed holdings, a switch in duration, and an impact on the shape of curve. What is certain is that on June 30, the Fed's balance sheet will have $2.68 trillion (or more) in holdings, of which $1.77 trillion will be in Treasurys, compared to the $840 billion today. What is also certain is that the Fed will not be able to stop there. Which is why we have extended the projection period through January 2012. At that point the Fed will hold $2.6 trillion in US Treasuries, or roughly 25% of total US marketable debt at that point.  And for those who collect now completely irrelevant statistics, the Fed will surpass China's $868 billion in UST holdings before the end of November. Yes, ladies and gentlemen, shit just got real.

Incidentally, nowhere do we assume that the Fed will have launched QE 3, 4, and so forth, over the next 12 months, even though we now estimate the probability of America becoming an exponentially self-monetizing, Weimar-type case study in hyperinflation at over 50%.

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Clayton Bigsby's picture

"Yes, ladies and gentlemen, shit just got real." - fucking genius - keep up the great work kids

Herd Redirection Committee's picture

I liked this quote: "we now estimate the probability of America becoming an exponentially self-monetizing, Weimar-type case study in hyperinflation at over 50%"

Whats two things they don't teach you in school?  Money, and history.  And definitely not the history of money!

LeBalance's picture

and more that they don't teach you in school: critical thinking, high confidence in your own unpopular opinion, self motivation, ....

66Sexy's picture

metals are surging. wondering if this is the melt up

putbuyer's picture

WHAM! The stock market collapses because there is no one to buy any of the stock for sale, at any price. It happens in the morning and the word gets out quickly. People know that something big is going on. By noon Eastern Standard Time the whole country is awash in the news. By two o'clock in the afternoon the big box stores are starting to sell out of groceries. All gasoline, food, and ammo are sold out that day. The unthinkable has happened. America has gone to her bunkers and awaits the anarchy that is sure to come. And the next day it begins. Those too stupid or unheeding are out and about looking for what they did not have to begin with. Violence breaks out all over the country, with warehouses in major cities being especially abused. Within a couple of days there is organized looting and robbing taking place. The bigger the marauding gang the more vicious they are. Power begets cruelty and lack of compassion.

hedgeless_horseman's picture

A financial earthquake?  Could that happen?  What would it look like?


DoChenRollingBearing's picture

For a minute there I thought I was reading a TEOTWAWKI novel...

But, putbuyer is right about being prepared for anything.  Gold, silver, guns & ammo, food and rural farmland are all worth looking at if the SHTF.

If things look like they could get that bad, the Bearing will look at moving to Peru!  Could live well there with what we have, and they are used to a lot of poverty around.  Self-sufficient in food too.

Yits and the Yimrum's picture

losing hope is the worst thing that can happen; so a good plan like yours is a must

i already have become a hobby farmer, and am investing my wages along those lines along with a hoard bought in 2003

good luck DoChen, and I hope your exit goes smoothly if it comes to that!

dark pools of soros's picture

what will the guns & bunker crowd do with lots of rural farmland?? they'll only need a half acre for themselves (since they will shoot everyone else, and not be haulin tons of food to the market) but will need about 60 acres of wooded land as a bufferzone..  with beartraps, etc

mark mchugh's picture

Well, the Fed is supposed to be the lender of last resort, right?

Yits and the Yimrum's picture

with 2.7 trillion on the Fed books, you know that there is going to be be major foreclosure on everything that moves in the good ole USA down the line

the statist pipe dreams must compete with jackboots that will have amassed 2.7 trillion doolars in claims

guess who wins on that score?

monopoly's picture

Bernanke has no idea what he is doing but this is all he knows. It will be QE till eternity or until we blow up. If we just let the system reset 2 years ago, we would probably start moving up on real numbers and growth.

When this blows up it will be a shot heard round the world.

Even the inmates are shaking their heads at the absurdity of it all.

knukles's picture

Well, no need to listen to those unscrupulous, underhanded, mysterious little untrustworthy commie bastards anymore.

Mission Accomplished.

BTW, does the Fed make campaign contributions, handle wire transfers for TPTB or any other sort of activities that'd make some folks blush if there were an audit of the total scope of Fed activities?  No, not just like where the audit discussions drew to a close last time of auditing FOMC OMO decision making (Farce) but the whole enchilada.

Any educated guesses?
Messers Pauls, please! 

laosuwan's picture

I predict that the fed will forgive the principal and interest on the bonds it has "bought" and the treasury will magically be solvent again.


snowball777's picture

That should provide plenty of spending room for the war with China it would cause.

Coldsun's picture

The only real losers are the people.

King_of_simpletons's picture

If I remember the moves in 'art of war', China will become an impoverished nation pretty soon holding worthless paper.. pretty soon.

tmosley's picture

I don't think you read the art of war.  If you had, you would see that China has taken whole.  So what if China loses out on the value of its dollar stockpile?  They have the entire world's industrial base!  It doesn't matter what kind of money is circulating in the world, it will all flow that way until that changes.

IE's picture

Entire world's industrial base?  Exaggerate much?

jdrose1985's picture

LOL what a fucking douchebag

And what, pray tell, does China actually produce that we can't do without???


Peter Schniff has had his way with you...


Shameful's picture

"even though we now estimate the probability of America becoming an exponentially self-monetizing, Weimar-type case study in hyperinflation at over 50%. "

Does this mean you see a 50% chance of no hyper inflation? Or does it mean that the 50% is that the dollar hyperinflation won't be a case study? Hell if it's 50% no hyperinflation then that is good news, means that we are playing Russian roulette with only half the chambers loaded, far better then my estimates :)

Youri Carma's picture

TnX! Great Stuff - Graph Also Zero Hedge!

Blah Blah Blah's picture

Huh?  The Treasury offers the debt and the Fed buys it?  What a great system (heavy sarcasm)......only in a broke country can you offer debt and buy it yourself.  And the statist want to investigate BoA, JPM and Wells?  Why aren't the lined up to put an end to this madness?

buzzsaw99's picture

mo money

mo money

keep on truckin'!

gwar5's picture

This is taking liars loans to a whole new level

Eric Cartman's picture

I just wanna front fun the fuckers. So 5-7 year futures should fair well. I know they're at historical lows but never underestimate the power of the fed, they can take these bonds to newar 0 if they so desire. 

Flatchestynerdette's picture

well....i would say better us than them  but there's something to be said for china to hold worthless shit, considering they've put our people out of work because they won't let the yuan float and nobody has the balls to call them on it since a trade war might happen. $2 knick knacks would be gone, now what?

snowball777's picture

If you feel that bad about it, burn down a Wal-Mart or three. "They" are merely vendors to the people who put Americans out of work. Know your enemy.

tmosley's picture

Funny you think it was the Chinese that put you out of work.  When you lose your job because your company wasn't profitable due to high state taxes and regulations, is it the fault of the neighboring state that doesn't have those taxes or regulation?

If you get mugged, are you poor and wounded because everyone else wasn't also mugged?

snowball777's picture

Yeah, couldn't possibly be because your company was actually unsuccessful, or rife with embezzlement, or a pump and dump scam.

Flatchestynerdette's picture

Bloomberg says that Goldman Sachs was advising traders to 'buy the long end of the curve.' Surprise! Anyone see where the 30s were trading? what a joke. its no wonder that the carpenter, the plumber, the trucker, the cashier, the waitress, et al, despise the BANKERS.

Everyman's picture

Ben Bernake when he was younger:

"Can anyone give me a 5 dollar bill for a twenty?"

RoRoTrader's picture

Exactly. It is a fucking joke. Seriously.

I am Not paying. Repeat after me; I am not paying.

One more time; I am not paying, dummy.

Translation; don't have the balls to admit it so will steal from someone, anyone, must be some dumbfucks to steal from.


MayIMommaDogFace2theBananaPatch's picture

How I Turned a Trillion in Real Estate into $25 in Cash!

Segestan's picture

I don't get it!!   40+ years of exporting American jobs , how the hell did this thing go wrong???

agrotera's picture

I looked at the picture and this song played in my head:


RobotTrader's picture

The Fed can buy unlimited amounts into infinity.

Because they are accountable to no one.

And our foreign debt enablers are inclined to keep wolfing down U.S. Treasuries as long as the PIIGS countries keep imploding.

And nobody, I mean NOBODY is ever going to audit the Fed.

agrotera's picture

i don't know, i think we might just get the fed audited, but will the money that is effectively grafted out of the pockets of generations of taxpayers ever be returned?

There may be bigger games than central banking at this point, so the drama of the fed ending might just be the thing to keep us all busy while the set up for the next scam takes hold...(I heldplessly sighed)

plocequ1's picture

Youre absolutely correct Robo. Its all about keeping the stock market going. I knew this a long time now and i don't even go to Harvard. You don't have to be a fucking genius to figure it out, Just a cold hearted realist. Those who would flag this as junk are not facing the cold hard facts. The facts are, To the Fed, There is no economy, Unemployment or Americans..There is only AT&T, Goog, AMZN, Appl, Amzn, Etc, And no, The Fed will not be audited. Im not saying its right, Its just what it is. In the end, We are all screwed. If this was Huffingtonton Post Robo, I would fan you...

zhandax's picture

The US Federal Reserve Note (AKA US Currency) has one enumerated consideration;

"This note is legal tender for all debts; public and private"

IOW, it is accepted for payment of US taxes and settlement of AT&T, Goog, AMZN, Appl, Amzn, Etc. as long as the sellers will accept it.  So much for the peeps in NA.  For the peeps on the rest of the planet, YMMV. 

Where it gets really interesting is if some of these newly-elected 'Tea Partiers' actually grow a pair and don't accept the invite to the corruption ball perennially hosted and paid for by wall street (admittedly fantasy if past history is any guide).

If any of the new congressmen don't want to play ball with Lloyd and Jamie and instead re-institute a Constitutionally-mandated currency (or even some similar bastard variant) the fed is on the hook for all those notes they have circulated; which is now outside the US Government.  This in turn means their stockholders will have to settle the claims against those trillions of assets on their books.  Guess who those stockholders are?  A bit of quick legislation should insure that the first claims paid are to the Social Security Trust Fund (largest holder of fed debt).

A return to the Constitution with cutting the cord between the US Government and the six sinners, and you have the sacking of the TBTF and the fed fait accomplis.


Ok, I know this is fantasy, but Obummer doesn't flee the country after complete discrace every day and I may as well increase the tension level a bit?

Fraud-Esq's picture

Monetization is the price the debt enablers pay for interest on excess cash made off our consumption and our system of "free trade", not to mention they're doing business with the only military power in the world. They'll take their hit like we will. Everyone in charge will far.   

palmereldritch's picture

FED, Red...what's in a letter?

Imagine what the world will be like when they merge and combine their power for the good of all!

so kiss a little longer...laugh, a little longer....

Strange...looks like they edited out the gulags

Element's picture

Frankly, I think Ben is going to be buying a lot more toxic MBS rather soonish, not unloading it.

Element's picture

On second thought, any extra MBS is going to be worth what? Not much at all.

Yet the MBS the Fed holds, as displayed, is priced as something substantial. So the level is a bit optimistic, in that case (but this is extend and pretend ya know, ya gots-ta-baleeve!).

However, on third thought, all that consolidated MBS muck, is also falling in value and credibility faster than even the Fed reputation, or the USD it prints, (or the Govt it props up) that these assets 'back'.

So, Ben probably could use more physical RE assets, just to make it look like he has some realisable actual assets to back up his balance sheet?

Back to my first thought, I recon he's going to end up with a lot more MBS, they just wont be worth anything, so will only inflate the asset book in abstraction (... but if he had the note ... that could actually mean something ... sell it off to his TBTF mates, like, really cheap ... hey, Bill! ... come over here a minute ...).

Things that make you go ...hmmm.

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