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Fed's Balance Sheet Tops $3 Trillion, But...

Tyler Durden's picture





 

... that's not true. The Fed's balance sheet, from a transaction basis, topped $3 trillion some 5-6 weeks ago. The only reason the Fed reported a $3 trillion number in today's H.4.1, or $3.013,333 trillion to be precise, is because all those MBS purchased in September and October following the September 13 reactivation of QE4EVA finally settled. In reality, the Fed's balance sheet is now some $3.12 trillion as there is about a $80-$120 billion lag between what the Fed has actually purchased, and what has settled. Luckily, at least Treasury purchases take far less to settle.

None of the above should come as a surprise to anyone: the Fed's balance sheet has been, even purely nominally, at $2.8/2.9 trillion for months. Wake us up when the Fed's balance sheet is $4 trillion, in precisely 11 months.

 


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Thu, 01/24/2013 - 17:48 | Link to Comment Tijuana Donkey Show
Tijuana Donkey Show's picture

It's not cheap to prop up a rotten AAPL.....

Thu, 01/24/2013 - 17:56 | Link to Comment Buckaroo Banzai
Buckaroo Banzai's picture

This is a little off-topic, but I just wanted to say, Diane Feinstein is a filthy, disease-ridden twat.

That is all.

Thu, 01/24/2013 - 18:00 | Link to Comment unplugged
unplugged's picture

Cunt would have been better.

Thu, 01/24/2013 - 18:15 | Link to Comment francis_sawyer
francis_sawyer's picture

She's a sweet lil ol Jewish girl... They always have in mind what's the best & most equitable for everyone... If she were Catholic, she'd be a saint by now...

Thu, 01/24/2013 - 18:27 | Link to Comment redpill
redpill's picture

Gosh it almost looks like an exponential equation.

Thu, 01/24/2013 - 19:39 | Link to Comment Papasmurf
Papasmurf's picture

The magic of compounded interest...

Thu, 01/24/2013 - 18:31 | Link to Comment TruthInSunshine
TruthInSunshine's picture

Don't bitch, because it's obligatory (I realize some will claim that the Fed's balance sheet explosion is not directly related to the U.S. deficits/debt, but the many on ZH know that they actually are directly related thanks to POMO) .

This has to be hammered home again & again until the Lamestream Media feels compelled to respond to it (maybe a 60 Minutes piece, or a Martin Smith PBS Frontline episode):

If they respond to it in such a manner, it'll be a sign that awareness is growing even amongst some dazed sheeple as they feel the hairs on their backs tingling a bit.

That'll serve to partially offset Jerry Moonbeam's & Paul Krugman's incredibly disingenuous, fraudulent proclamations of late that the "deficit is resolving itself" (no, really, both have made comments along these lines, recently):

The fact that we are here today to debate raising America’s debt limit is a sign of leadership failure. It is a sign that the U.S. Government can’t pay its own bills. It is a sign that we now depend on ongoing financial assistance from foreign countries to finance our Government’s reckless fiscal policies. Increasing America’s debt weakens us domestically and internationally. Leadership means that ‘the buck stops here. Instead, Washington is shifting the burden of bad choices today onto the backs of our children and grandchildren. America has a debt problem and a failure of leadership. Americans deserve better.

Senator Barack Obama
Senate Floor Speech on Public Debt
March 16, 2006 

*At the time Obama gave this impassioned speech, vehemently opposing any increase in the nation's debt ceiling, the official U.S. national debt was approximately 8 trillion USD lower than where it stands today.

Thu, 01/24/2013 - 18:01 | Link to Comment piceridu
piceridu's picture

What a great title for a new reality show!

Thu, 01/24/2013 - 18:12 | Link to Comment MFLTucson
MFLTucson's picture

Feinstein, Bloomberg, and Schmuck Schumer are leading the pack to ban guns and they are the same group that would be first to tell you about all the Jews who died because of Hitler’s slaughtering of their ancestors in Nazi Germany.  I find this so amazing because the very reason they were butchered was because they had no guns to protect themselves.  

 

Thu, 01/24/2013 - 18:15 | Link to Comment francis_sawyer
francis_sawyer's picture

The only thing the jews learned from the holocaust was how to be nazi's themselves next time around...

Thu, 01/24/2013 - 19:43 | Link to Comment economics9698
economics9698's picture

 

The Jews created the Holodomor before the Holocaust.  It has always been their goal to annihilate the goyim.  Everything they do is about centralizing power and then using the power to kill goyim.

They are pissed about the Romans and always will be, 

 

Thu, 01/24/2013 - 20:07 | Link to Comment francis_sawyer
francis_sawyer's picture

Romans... & Egyptians before that...

~~~

That's why it's impossible to talk about it with any context whatsoever today... Every FUCK that lives nodadays thinks that HISTORY simply traces back to the Civil Rights Era in the 1960's...

Fri, 01/25/2013 - 02:05 | Link to Comment All Risk No Reward
All Risk No Reward's picture

Is my Jewish neighbor in on it?

If not, perhaps you better do some vocabulary work and find the right word or phrase to communicate yourt idea with more finesse than an elephant stampede.

It isn't "the Jews."  They are very wicked and powerful people running a financial fraud on essentially the world...  maybe 99.99% of "the Jews" as well.

500,000 of "the Jews" are out protesting their "the Jews" government over in Israel - so they'd like to know when they are going to get their loot from the bastards at the top robbing them.  They must have missed that memo.

http://www.youtube.com/watch?v=Lz7MjNMdH2U

The whole poiont of realizing the education  system has dumbed us down is to inspire us to elevate our own level of thought and communication so we don't fall into their trap.

Any criminal element benefits when they get lumped in with a larger group composed of noon criminal elements.

MLK was right - it is a content of character issue.  Such a simple concept, such a simple truth...  so far over so many heads.

Snap out of the trance!  Focus on the real criminals...  not a group of mostly victims... just like the rest of us.

Fri, 01/25/2013 - 02:39 | Link to Comment Ham-bone
Ham-bone's picture

ditto - so tired of the Jew bashing bullshit...as if all Jews, all Christians, all Americans are "in on some scheme"...focus on the sociopaths, the criminals, the apologists...

Fri, 01/25/2013 - 02:40 | Link to Comment JOYFUL
JOYFUL's picture

Your effort is a considerable refinement on the usual apologia proffered here by those who wish to avoid scrutiny of the root causes of root rot...but is an apologia non the less...which will not be allowed to stand unchallenged...because...

though it's precisely correct that "the jews" as a group cannot be targeted as that root cause, as many 'jews' are non-talmudist and therefore, less toxic to the body politic, the people designated by the term need take a proactive and collective responsibility for what is and has been done in their name...

like a group of cells which having once proven itself useful in symbiotic relation to the rest of those which make up the totality of the social organism, and therefore is now accepted by it's host as non-threatening, those who define themselves as jews need recognize that a viral disease vector has shaped itself into their image and uses the subertfuge to outwit the white killer cells tasked with protecting the immune system...freakish frankist-sabbatean hijackers of judaism(and islam in the form of Dolmeh...likewise christianity in the form of calvinists)have used it's shell to attack both West and East and attempt to destroy both.

Jews need to do the necessary work to not just wake up to their being used as weapons of mass destruction against us, but to actively identify the cryptos who use them as cover for their mad schemes. The sionist project has a long record of throwing jews under the bus, but the Big Lie we live under commands that this obvious truth be not discussed.

In fact, there's no free pass for anyone to avoid doing this homework...Whitey is just as culpable for having allowed these diseased minds to nest in his\her bed...and then kick us out of it altogether, using their puppet henchmen like the Kenyan....to arrive alive at the end of this dark night of the West we're all going to have to band together to exfiltrate the frankist filth...using the influence and inspiration of jewish resistors like Michael Hoffman, Gilan Atzmon, and the many others who are showing their fellow jews the way forward.

Fri, 01/25/2013 - 02:17 | Link to Comment e-recep
e-recep's picture

actually, they have been racist for the last 5000 years.

Thu, 01/24/2013 - 17:57 | Link to Comment Nihilarian
Nihilarian's picture

And I only have 3 platinum coins. I can't even buy the Fed's balance sheet anymore.

Thu, 01/24/2013 - 18:08 | Link to Comment DeadFred
DeadFred's picture

I wonder if the annoited ones get to use their money before it settles. It would be sad for them if they lost their repoed-to-infinity mortgage back security and they couldn't play with the cash for all that time. Sad.

Thu, 01/24/2013 - 21:48 | Link to Comment Buck Johnson
Buck Johnson's picture

Not cheap at all, but it's not the last.

Thu, 01/24/2013 - 17:49 | Link to Comment Seasmoke
Seasmoke's picture

as Obama like to say FORE !!!!!!!!!!! Trillion

Thu, 01/24/2013 - 18:21 | Link to Comment U4 eee aaa
U4 eee aaa's picture

You DEFINITELY don't want that ball to hit you in the head!

Thu, 01/24/2013 - 17:51 | Link to Comment krispkritter
krispkritter's picture

It's not really a Balance Sheet, it's a large Etch-A-Sketch.  One good sneeze at the Fed and all hell breaks loose...

OT but you gotta read this: 

Florida cops Taser naked burglar who pooped and masturbated when homeowner pulled a gun 
Thu, 01/24/2013 - 18:06 | Link to Comment HoaX
HoaX's picture

Sounds like someone has been enjoying the Bath Salts a bit too much. Oh well, Florida, nuff said.

Thu, 01/24/2013 - 18:10 | Link to Comment krispkritter
krispkritter's picture

At this rate we'll be the next California in a couple years, thus my heading for different pastures...

Thu, 01/24/2013 - 18:36 | Link to Comment Rainman
Rainman's picture

Believe it or not, CA is appearing more mainstream all the time in the era of the ObamaNation...and I've lived here all my life and never dreamed I'd ever say that. 

BTW, the " rich " are getting the hell out of here.

 

 http://www.foxnews.com/politics/2013/01/23/california-residents-businesses-consider-bailing-on-golden-state-over-taxes

Thu, 01/24/2013 - 19:53 | Link to Comment Papasmurf
Papasmurf's picture

Was this Macafee?

Thu, 01/24/2013 - 19:07 | Link to Comment chump666
chump666's picture

That was the funniest article, albeit with it's crappy grammer, I have read in a long time

As Bruni was allegedly headed to where guns were stored in the son’s bedroom, the wife fired three shots from a .38 revolver, possibly as a warning. When deputies arrived, they said Bruni was flailing around on the floor and not making any sense. At one point, he sucked the water from the spilled vacuum into his mouth and spit it back out.
Thu, 01/24/2013 - 17:52 | Link to Comment chump666
chump666's picture

That is depressing.

Thu, 01/24/2013 - 17:53 | Link to Comment irishlink
irishlink's picture

Is it just accidental that the number is all 33333333?

Thu, 01/24/2013 - 18:00 | Link to Comment justanothersucker
justanothersucker's picture

Just means he's halfway there.

Thu, 01/24/2013 - 17:55 | Link to Comment LawsofPhysics
LawsofPhysics's picture

Getting a bit ahead of schedule aren't they?

Thu, 01/24/2013 - 17:56 | Link to Comment natronic
natronic's picture

So if we assume certain things.  The budget deficit was $1.1T in 2012.  At approx $800B in 11 months would mean the feds are monetizing 80% of the debt.  That is only if we assume certain things.  I wouldn't be suprised if those numbers ended up being low.

Thu, 01/24/2013 - 17:59 | Link to Comment DoChenRollingBearing
DoChenRollingBearing's picture

Clap, clap, clap!

+ $3 trillion!  A milestone worth celebrating!

 

Forward!

Thu, 01/24/2013 - 17:58 | Link to Comment fonzannoon
fonzannoon's picture

bearish for gold.

Thu, 01/24/2013 - 19:35 | Link to Comment Missiondweller
Missiondweller's picture

Sarcasm?

Thu, 01/24/2013 - 18:01 | Link to Comment Sudden Debt
Sudden Debt's picture

120 billion... hardly worth the mention...
what can you still do with 120 billion?

not much...

create 1.100.000 jobs for a full year for example in the private sector....

but why would you do that when the population quits out of the labor force?

3 trillion on the other hand... 3 million million dollar jobs....

30 million 100k jobs...

let's say you could create 15 million good jobs and build the factories that go with it...
than yes... 3 trillion is a lot of money...

Thu, 01/24/2013 - 18:11 | Link to Comment DeadFred
DeadFred's picture

It's really not that much money if you think in terms of Wall Street bonuses.

Thu, 01/24/2013 - 17:59 | Link to Comment MFLTucson
MFLTucson's picture

Disgraceful!

Thu, 01/24/2013 - 18:00 | Link to Comment spankfish
spankfish's picture

Projected?  That's an awful lot of testosterone to pump that prick up.

Thu, 01/24/2013 - 18:00 | Link to Comment justanothersucker
justanothersucker's picture

$120 Billion?  Barely a rounding error.

Thu, 01/24/2013 - 18:02 | Link to Comment Sudden Debt
Sudden Debt's picture

4 more pixels on the debt graph...

Thu, 01/24/2013 - 18:30 | Link to Comment John Law Lives
John Law Lives's picture

How long before the Great Chairsatan comes out and says there is no reason for the Fed to have ANY limit to its balance sheet or sell the securities it holds....

FUBAR to Hell.

Thu, 01/24/2013 - 18:02 | Link to Comment Sudden Debt
Sudden Debt's picture

America's debt doubled in 4 years with 8 trillion dollars...

And all I got was this Obama phone...

Thu, 01/24/2013 - 18:32 | Link to Comment DoChenRollingBearing
DoChenRollingBearing's picture

Reply of the day?

Thu, 01/24/2013 - 18:33 | Link to Comment U4 eee aaa
U4 eee aaa's picture

Not true. You also got a lip synced in-awe-gyration

Thu, 01/24/2013 - 18:36 | Link to Comment Bunga Bunga
Bunga Bunga's picture

What is the problem? 8, 16, 32, 64, 128, 256, 512, 1024 ... even a cheap computer can do it!

Thu, 01/24/2013 - 18:42 | Link to Comment Sudden Debt
Sudden Debt's picture

it's a bit thing... no wonder bitcoins will be the future :)

Thu, 01/24/2013 - 18:01 | Link to Comment LongSoupLine
LongSoupLine's picture

Audit, arrest, prosecute and execute the Fed.

 

Fuck you Bernanke, you fucking bank propping fucking middle class wealth destroying fuckhat.  Drown in fucking diseased whale shit asshole.

Thu, 01/24/2013 - 18:04 | Link to Comment stant
stant's picture

those denver mint platinum plated state quarters i got on ebay are going in the vault now, with the guns

Thu, 01/24/2013 - 18:13 | Link to Comment inevitablecollapse
inevitablecollapse's picture

man, you are lucky - unfortunately, i lost everything in my storage garage in a nasty conflagration

Thu, 01/24/2013 - 18:03 | Link to Comment Obchelli
Obchelli's picture

333333 cause this number was filtered by Topeka Capital Markets Analyst

Thu, 01/24/2013 - 18:04 | Link to Comment Kreditanstalt
Kreditanstalt's picture

What nobody seems to understand is that the Fed NEVER needs to "shrink its balance sheet".

This is a perpetual money machine as long as people insist on using the FRN...

Thu, 01/24/2013 - 18:10 | Link to Comment Joe moneybags
Joe moneybags's picture

We all understand that the Fed never need, or will, shrink its balance sheet.  It was designed as a perpetual money machine.

Thu, 01/24/2013 - 18:16 | Link to Comment Ham-bone
Ham-bone's picture

There is sooooo much liquidity in excess reserves that we can't even have the slightest of selloffs before all those with "money" r looking to deploy...wonder how high this bubble will get and just how this will end???

Thu, 01/24/2013 - 21:56 | Link to Comment Kreditanstalt
Kreditanstalt's picture

It was designed as a perpetual money machine.

 

We all know that - but it doesn't stop loads of supposedly-intelligent commentators discussing what will happen when "the Fed has to shrink its balance sheet"...

Thu, 01/24/2013 - 18:35 | Link to Comment U4 eee aaa
U4 eee aaa's picture

You are right. The confidence game continues until the confidence or the confidence man runs out (and it is almost always the confidence man that ends it).

Many are betting on the probability that when 'they' are ready, the presses will stop dead in their tracks. Just like they did with the housing bubble, watch for the spike

Thu, 01/24/2013 - 18:43 | Link to Comment ebworthen
ebworthen's picture

I love my dollars.

They seem to buy less and less, especially since 2008, for some reason...

Thu, 01/24/2013 - 18:15 | Link to Comment hooligan2009
hooligan2009's picture

ponders whether mbs being "settled" means the mortgages are paid off, marked to market, in foreclosure, stuck with MERS, 

or,

being rolled over

and also how much of the interest being paid on mbs is actually interest on mortgages and how much maturing is principal 

and

why, if the Fed owns 80% of the mortgage market, why rates on the MBS it is buying are 2-3% lower than the mortgage rates being paid by those people buying hosues with mortgages.

still

mortgage deductibility means that at least 100,000 people can be employed in a circle jerk to rip off mortgagees (tax payers.

I won't bring up the fact that the cost of insuring the house and its contents and employment of the mortgagee exceeds the mortgage interest cost anyway. 

Thu, 01/24/2013 - 18:14 | Link to Comment PUD
PUD's picture

"I WILL NOT MONETIZE THE DEBT"  B.B. ON LIVE TV

Thu, 01/24/2013 - 18:30 | Link to Comment madcows
madcows's picture

"We are not printing money"  Berstankee to Congress. 

Thu, 01/24/2013 - 19:55 | Link to Comment Papasmurf
Papasmurf's picture

Technically, he isn't.  Debt isn't money.

Thu, 01/24/2013 - 18:20 | Link to Comment de3de8
de3de8's picture

That's all? He'll, let's party!

Thu, 01/24/2013 - 18:21 | Link to Comment Clesthenes
Clesthenes's picture

What’s more interesting – only because no one else has noticed – is the acrobatics regarding the collateral behind issued Federal Reserve notes (the scrip we carry in our pockets).

About 150 years ago, gold was the collateral for issued bank notes; from 1863 (the National Banking Act) to about April of 2009, federal debt instruments replaced gold as this collateral.

During the first week of Dec 2007, $5 billion of this collateral went missing.  Judging by “statistical releases”, H4.1, it was a conscious decision by Fed bureaucrats to make this collateral go missing – just to see what havoc it would cause in world markets.  It was the same week that began the disappearance of nearly $1 trillion of bank reserves.

By April of 2009, only 53% of “currency in circulation” was collateralized – and no one noticed (outside of those who made it happen).

It was staggering: the world’s reserve currency… and no one noticed it was only half collateralized at one point in time.  Imagine what would have happened if the collateral had been gold… and no one had noticed it had gone missing.

Here, you have a chance to be the first in your nation to notice this.

 

Thu, 01/24/2013 - 18:39 | Link to Comment ebworthen
ebworthen's picture

And the sheeple say:  "What's a collateral?"

"Is that some kind of new screen pattern in the NFL?"

"Is that a new game to play in the bedroom, on your sides?"

Thu, 01/24/2013 - 18:27 | Link to Comment falak pema
falak pema's picture

so how does this compare to the ECB balance sheet?

Thu, 01/24/2013 - 19:15 | Link to Comment hooligan2009
hooligan2009's picture

well you have this:

http://www.ecb.int/mopo/implement/omo/html/index.en.html

looks like its around a trillion euros (if you go to "Open Market Operations".

then you have the circle jerk facilities like the EFSF here, amount lent to portugal, ireland and greece (mainly) c. 140 billion euros

http://www.efsf.europa.eu/about/operations/index.htm

i don't lknow where to look for market operations involving the repo'ing of sovereign debt by various countries central banks in exchange for cash, here are the eligibility rules. 

http://www.ecb.int/mopo/assets/standards/marketable/html/index.en.html

maybe this has soemthing to do with target2 that settles an average of 2.4 trillion euro a day

http://www.ecb.int/paym/t2/html/index.en.html

so....somewhere between 1.1 trillion and 3.5 trillion depending on how you look at it

Thu, 01/24/2013 - 18:30 | Link to Comment yogibear
yogibear's picture

Obama, the Senate and Congress can dump all of the debt on the Federal Reserve. Bernanke and the Federal Reserve banksters can make it disappear.

Bubble Bernanke is good hiding crap and lying.

Fraud is the game now and everyone is playing the game.

How much of the debt was actually put on the fed's balance sheet or is some the garbage off-balance sheet?

Thu, 01/24/2013 - 18:29 | Link to Comment edifice
edifice's picture

So, what happens when the FED owns everything?

Thu, 01/24/2013 - 18:32 | Link to Comment css1971
css1971's picture

They cancel all the debt and we live happily ever after.

Thu, 01/24/2013 - 18:37 | Link to Comment Bunga Bunga
Bunga Bunga's picture

You are simply owned by the banks, you are a happy slave!

Thu, 01/24/2013 - 18:36 | Link to Comment ebworthen
ebworthen's picture

Only $3 Trillion?

Debt is at $16 Trillion.

Unfunded liabilities over $65 Trillion.

Shadow banking deriviatives at over $700 Trillion.

I don't see a problem here; 5 billion or so dead people should fix this.

Thu, 01/24/2013 - 18:35 | Link to Comment Uncle Zuzu
Uncle Zuzu's picture

Lyrics from "Crime of the Century" by Supertramp

"Now they're planning
the crime of the century.
Well, what will it be ? 

Read all about
their schemes and adventuring;
Yes, it's well worth the fee.

So roll up and see
how they rape the universe,
how they've gone from bad to worse.

Who are these men
of lust, greed and glory ?
Rip off the masks and let's see.

But that's not right !
Oh no, what's the story ?
Look, there's you and there's me.

That can't be right..."

Thu, 01/24/2013 - 18:43 | Link to Comment OMG
OMG's picture

They TPTB do not care about the deficits and know it does not matter all will see that pretty soon.

 

 

 

Thu, 01/24/2013 - 18:45 | Link to Comment youngman
youngman's picture

I used to think I was doing pretty well....but to have 3 trillion in your account...whew.....I got a ways to go....maybe when I get there I can have a white badge at Davos

Thu, 01/24/2013 - 19:02 | Link to Comment q99x2
q99x2's picture

3 Trillion = Party Time Bitchez.

Thu, 01/24/2013 - 19:21 | Link to Comment IridiumRebel
IridiumRebel's picture

Dude! I'm naked snorting champagne with a ribbon tied hard on right now I'm so happy! Long Daughter's tears.....

Thu, 01/24/2013 - 20:35 | Link to Comment toros
toros's picture

Where do we get our "3,000,000,000,000!" hats?

Thu, 01/24/2013 - 20:59 | Link to Comment sansnobel
sansnobel's picture

Did anybody see Alan Blinders interview recently?  He says it should be no big deal when it comes time to unload the Fed's balance sheet back into the market.  I'm kinda curious what he may be thinking.  Once the digitaly created money is sucked out of the economy thru the sale of securities on the Fed's ledger they will have to "uncreate it" or burn it.  It's all one big accounting charade aparently.  So the next question would be how do you uncreate 1's and 0's?  Guess since it's all on a computer they can pretty much do whatever the hell they want with all the liquidty they will have to draw out of the economy.  Wonder what interest rates will do and what the stock market will do this time when the markets hear that giant sucking sound......

Thu, 01/24/2013 - 22:19 | Link to Comment helping_friendl...
helping_friendly_book's picture

The FRBNY will soak up, conjured, liquidity by raising the discount rate. Banks pay more interest to the FRBNY and they take the notes out of circulation. 

Money dries up and the big fish eat the little fish. Those over extended fail and those with dry powder get rich in Treasury bonds paying 10%+.

This jacked up market is a suckers bet to lure capital into the market so the FRBNY can pull the rug out from under your feet.

When T-bonds start paying over 10% those over extended start crying.

Move to cash NOW. It might take a year but, you don't want to miss out on high yield Treasury debt.

Thu, 01/24/2013 - 21:36 | Link to Comment septimus
septimus's picture

Bernanke is nothing but a Goldman shill

http://www.penurystreet.com/the-profile-of-ben-bernanke/

Thu, 01/24/2013 - 21:59 | Link to Comment helping_friendl...
helping_friendly_book's picture

Geithner to replace Bernanke.

 

http://www.bloomberg.com/video/will-timothy-geithner-succeed-ben-bernank...

 

We are, surely, doomed.

Thu, 01/24/2013 - 22:02 | Link to Comment Bear
Bear's picture

If you believe the prediction that the FED BS will approach 4T this year then you also must believe that ES will go to 1600 and at least some of it's money will find its way into silver/gold shorts. You can't have 1T added to the slop and not see it lift markets. If someone has an alternative narrative, I would love to hear it, because I am the Bear.

Fri, 01/25/2013 - 02:02 | Link to Comment jonjon831983
jonjon831983's picture

Yawm, 120 Billion here or there, it doesn't seem to matter anymore. It just sounds so little.

Fri, 01/25/2013 - 02:40 | Link to Comment Me_Myself_and_I
Me_Myself_and_I's picture

Father Ben says Gold is not money.

Fri, 01/25/2013 - 08:08 | Link to Comment polo007
polo007's picture

http://www.safehaven.com/article/28522/its-all-in-the-flows

The 2007 Federal Open Market Committee (FOMC) transcripts were released last week. Media reports have concentrated on the Fed's forbearance during the credit meltdown. Implied, but not stated (in what I have read) is the major reason for such nonchalance: The Fed only acknowledges flows, not stocks. This might sound boring. It is also very important to understand.

This approach to central banking has not changed. All of the major central banks use the same framework. The media and Wall Street spend most of their time interpreting the meaning of central-bank talk. Central banks will never mention a growing concern about loan defaults since the academics can always thwart potential catastrophes by modeling preventive flows (e.g., liquidity). The catastrophic financial failure that most of us endured in 2007 and 2008 was not a failure at all, according to central bankers. Their models still conclude there is always a central-banking solution that will prevent any catastrophe. In conclusion: when the current financial bubble topples, there will no forewarning from central bankers, the media, or Wall Street. Given their processes of thinking, they will be more surprised than the average hairdresser.

"Stocks," in this case, does not refer to common stocks, but the accounts and categories in which assets (and their liabilities) accumulate. The Fed, a creature of academia, knows everything. Knowing everything limits policy to sufficient "liquidity": flows. It - to be more precise - its DSGE model, does not care about accumulations: stocks.

The Fed was taken unaware when credit cracked up in the summer of 2007. Unlike many local realtors and carpenters, the FOMC did not understand the connection between flows (bad loans pouring into off-balance sheet Special Investment Vehicles) and stocks (of mushrooming mortgage credit going sour). The Fed presumably noticed pieces of the mortgage machine (subprime lenders, appraisers, Fannie Mae, commercial banks, investment banks, CDOs) even though it did not comprehend the artificiality of this contrived structure. Hence, the Fed missed the connection between the economic expansion of the mid-oughts and its artificial nature. (As we know now, the Fed does not blanch at running an economy by rigging its prices, so, we know now, central banks do not understand an artificial economy is unsustainable.)

All of which is to say the Fed and its FOMC did not know a loss of forward momentum would be followed by an abrupt shift to backward momentum. Again, this has not changed. Despite talk of deleveraging, the U.S. economy has continued to lever up since the non-catastrophe of 2007 and 2008. Total non-financial debt has risen from 240% of GDP in the fourth quarter of 2008 to 249% of GDP after the second quarter of 2012.

The Fed does not understand the artificial credit created by central banks that has flowed since 1971 has coagulated into unsustainable imbalances around the world. The FOMC will be in the caboose when government debt loses its imaginary, "riskless" character (e.g., banks do not need to reserve against most sovereign bonds). As in 2007 and 2008, the stated price of artificially produced assets is illusory, so the assets cannot stand on their own without ever increasing flows to support prices. The flows accumulate in stocks, the artificial composition of which will topple.

Fri, 01/25/2013 - 09:14 | Link to Comment CJHames
CJHames's picture

I have to agree, the Jew bashing shit must stop.  Prejudice is the sign of a weak mind.

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