Federal Reserve

Even as liquidity swaps and CPFF hit a new all time low since inception at $33 and $32 billion, respectively, the Fed's accelerating purchases of securities, mostly MBS and agencies, keep the Fed's balance sheet flat week over week.

In a surprisingly aggressive piece of prepared testimony before the House Financial Services Committee by AFL-CIO president Richard L. Trumka, the labor union, which represents over 11 million working members, shares some very harsh words with regard to the proposed regulatory reform in general, and the continue functioning of the Federal Reserve in particular. Notable is that many of the concerns voiced by the AFL-CIO are precisely those that should be highlighted by many other presumably much more sophisticated entities which are expected to carefully consider all potential impacts of future regulatory reform, yet which have expressed a surprising interest in perpetuating the status quo except for a few minor cosmetic changes.

Courtesy of the Fed's own disastrous policy of flooding the market with trillions of cheap credit over the past several decades, the resulting massive one-sided trade of buying dollar denominated securities, funded with inappropriately duration matched products, ended up in $6.5 trillion of Fed-funded global Moral Hazard exposure. When the wheels came off the financial system last fall, the Fed had to step in and bail out all foreign Central Banks. From the BIS: "In providing US dollars on a global scale, the Federal Reserve effectively engaged in international lending of last resort...What pushed the system to the brink was not cross-currency funding per se, but rather too many large banks employing funding strategies in the same direction, the funding equivalent of a crowded trade." The imminent question - How long until the next iteration of the Fiat banking system's most crowded trade (long US-denominated securities, courtesy of a cheap carry trade somewhere in the world) pulls the system back to the brink again?

Securities held outright: $1,608 billion
(an increase of $75.3 billion MoM, resulting from $13 billion in new
Treasury purchases, $52 billion increase in MBS and $11 billion in Agency Debt), or $13 billion increase sequentially

Net borrowings: unchanged at $289 billion, as no update in the current week.

Float, liquidity swaps, Maiden Lane and other assets: $231.8 billion, a $4 billion decrease based on a $252 million reduction in CPFF and a $6.2 billion reduction in FX liquidity swaps, bringing these to a fresh 52 week low. At $43 billion in liquidity swaps, there is little room left for the Fed to force foreign CB to keep pressing on the dollar. Keep an eye out on this datapoint as it is probably one of the better leading indicators of when foreign CBs start covering their dollar shorts (and are in need of dollar funding by the Fed).

By using our balance sheet, the Federal Reserve has been able to overcome, at least partially, the constraints on policy posed by dysfunctional credit markets and by the zero lower bound on the federal funds rate target. By improving credit market functioning and adding liquidity to the system, our programs have provided critical support to the financial system and the economy. Moreover, we have carried out these programs responsibly, with minimal credit risk and with close attention to the exit strategy. Our activities have resulted in substantial changes to the size and composition of our balance sheet. When the economic outlook has improved sufficiently, we will be prepared to tighten the stance of monetary policy and eventually return our balance sheet to a more normal configuration. - Chairman (or is that Printman) Ben Bernanke

Total Federal Reserve balance sheet assets for the week of October 7 of $2,119 billion ($1 billion lower compared to the prior week's $2,121 billion).

"Long-term let's change the mission of the Federal Reserve: let's codify something that prevents it from running amok, like it did for the past ten years" - Paolo Pellegrini

Reporters at the WSJ have uncovered something very intriguing while they were combing through the billing records of Jenner and Block, whose chairman, Anton Valukas is currently moonlighting as the examiner of the Lehman Bankruptcy Case. In J&B's August fee statement, the firm discloses information that as part of its estate recoupment process, it has been contemplating suing none other than the Federal Reserve.

Total Federal Reserve balance sheet assets for the week of September 23 of $2,139 billion ($6.4 billion higher compared to the prior week's $2,133 bn), now just $35 billion shy of the all time high of $2,174 billion recorded on April 22.

Alan Grayson doing his immaculate Jaws impression here. And the man is definitely smelling a wounded and bleeding Fed. Must watch clip.

Grayson to Fed General Counsel Scott Alvarez: "Do you mind if we have a GAO audit to see if there has been front-running or insider trading by [Fed Primary Dealer JP Morgan]? Do you mind? Is that ok with you?"

Total Federal Reserve balance sheet assets for the week of September 23 of $2,133 billion ($44.5 billion higher compared to the prior week's $2,088 bn), and this time just $41 billion shy of the all time high of $2,174 billion recorded on April 22

The degree of intermediation by the Federal Reserve in the issuance of US Treasuries hit a record in Q2, accounting for just under 50% of all net UST issuance absorption. This is a startling number, as the Fed's $164 billion in Q2 Treasury purchasesdwarfs the combined foreign/household UST purchases of $101 billion and $29 billion, respectively, over the same time period. In fact, the Fed was a greater factor in UST demand than all three traditional players combined: Foreigners, Households and Primary Dealers, which amounted to a $158 billion in net Q2 purchases.

The Fed now has $15 billion in purchasing power left under the Treasury component of QE. Of the $1,250 billion in MBS projected to be bought by the end of the year, the Fed was already purchased $840 billion, leaving $410 billion in budgeted purchases over the next three and a half months: about $125 billion per month.

Total Federal Reserve balance sheet assets for the week of September 16 of $2,101 billion ($30.7 billion higher compared to the prior week's $2,071 bn), just $73 billion shy of the all time high of $2,174 billion recorded on April 22.

Rep. Alan Grayson announces there will be a hearing in late September on the bill to audit the Federal Reserve.