Congress Asks Bernanke For Full Risk Analysis On Fed's Soaring Balance Sheet

Tyler Durden's picture

Several days ago we wrote about what we defined as the Fed's "D-Rate" - the interest rate at which the cash outflows from payments by the Fed on its Excess Reserves will surpass that cash inflows from its asset holdings, a very troubling day because as we further explained, from that point on the Fed would be "printing money just to print money." In other words, with every passing day, the Fed is getting ever closer to the point where the inflation it so very much wishes to unleash will force it to essentially request a technical bailout from Congress (and certainly will halt all future interest remittances to the Treasury), and the longer this takes, the lower the breakeven interest rate becomes, until one day it is so low the tiniest rise in rates will immediately put the Fed into the red. It now appears that Congress itself, the ultimate beneficiary of the Fed's free money policy as nearly half of all US spending is funded by the Fed's monetization of the deficit at ultra low rates, is finally catching on to what is the ultimate rock and hard place for Ben Bernanke. In a letter penned by the Chairman of the House Oversight & Government Reform Committee, Jim Jordan, says that he is "troubled by the corresponding effect that the Federal Reserve's expanding portfolio could have on current and future economic growth" and has asked the Fed what its "future plans to unwind the [$3 trillion and rising at $885 billion per month] portfolio" are.

What is surprising that Jordan actually gets it:

I am especially concerned that the historically low interest rates brought on by the Federal Reserve's monetary policy have hampered economic growth by distorting traditional financial incentives.

It gets better:

Younger Americans who have been working to save their income have faced meager returns in bank accounts and larger balance requirements, slowing their overall accumulation of wealth.' Likewise, older Americans living off of interest-bearing accounts have been forced to move to riskier investments to maintain their standards of living.

And best:

Most strikingly, by maintaining low interest rates, the Federal Reserve has distorted the real cost of the national debt, effectively "incentiviz[ing] the U.S. government to borrow and overspend."

Jordan is not happy:

The Committee has previously written to you with concerns about monetary policy in the United States. In July 2011, after a meeting between Committee staff and Federal Reserve staff, the Committee requested that you provide all Federal Reserve studies used to determine the value of Federal Reserve assets and "what the potential losses would be based on different unwind scenarios regarding the Federal Reserve's portfolio..." The Committee also requested that you provide "all estimates and analysis of the potential costs of payment of interest on reserves" that would incentivize banks to maintain excess reserves. In response, you provided only publicly released studies, and you did not provide any precise estimates of the future cost of reserve interest rate payments

As a result...

I respectfully request the following information for the period November 25, 2008 — present:

  1. All public and non-public studies, estimates, analysis, and evaluations of the value of the Federal Reserve's assets and any potential losses associated with future unwind scenarios commissioned or undertaken by any employee, agent, or contractor of the Federal Reserve;
  2. All public and non-public studies, estimates, analysis, and evaluations of the potential costs of payments of interest on reserves sufficient to prevent inflation associated with future unwind scenarios commissioned or undertaken by any employee, agent, or contractor of the Federal Reserve;
  3. All documents and communications between or among employees, contractors, or agents of the Federal Reserve System and employees of the Treasury Department or the Executive Office of the President referring or relating to the value of the Federal Reserve's assets and any potential losses associated with future unwind scenarios;
  4. All documents and communications between or among employees, contractors, or agents of the Federal Reserve System and employees of the Treasury Department or the Executive Office of the President referring or relating to the Federal Reserve's cost of payment of interest on reserves

Well, better late than never. However, we are confident that Jordan will be unhappy with the response whose advance preview we provide below:

Dear Jim,


Please accept this first completely blank napkin as evidence of all the rigorous analysis the Fed has conducted on all the issues you bring up. Also, on the second completely blank napkin we would have written the date on which we expect to begin unwinding the Fed's balance sheet.


Peace out,


Chairsatan Ben

Full letter below.

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Shizzmoney's picture

I'm sure they'll get a FULL TRANSPARENT answer for their troubles from the Fed, who has been completely honest about everything since 1913.

My God, we're massively getting trolled on a daily basis!

TerminalDebt's picture

I'm sure the answer will be "Fuck off, and I hope you don't accidentally drown in an inch of bathtub water soon"

Xibalba's picture

Data dump on the next holiday weekend

Dr Paul Krugman's picture

The Fed is doing what they are mandated by law from Congress to do, yet some of Congress wants to get their hands in the cookie jar so that their constituents - who are not economists - vote for them again.  It will be a horrible day when Congress, who do everything only for votes, begin to regulate the money supply, because if that ever happens it will be without an impartial bias.

francis_sawyer's picture

They must wanna know if their 'insider stock trading' positions are in any jeopardy... 

Manthong's picture

I can save Ben and the Congress a lot of time and eliminate the confusion.

You have two choices:

1.    We continue to expand the counterfeit "reserves" and fund you so that you can keep your pathetic “leadership” jobs until the collapse.

2.    We stop expanding, you stop spending and you lose your pathetic “leadership” jobs before the collapse.

Because of your pathetic, myopic, self-serving  “leadership”, those are the only two choices left for you.

kralizec's picture

They'll pick option #1 of course. 

Bullish for collapse, lopped off heads, etc!

Middle_Finger_Market's picture

Unwind...they will unwind it witb bullets and brute force. 

sullymandias's picture

The solution is negative nominal interest rates. Then the US Treasury can keep on borrowing, and the US debt will eventually go to 0.

donsluck's picture

And PMs are the ONLY investment vehicle left. I like it!

LawsofPhysics's picture

Sweet, this means that the banks will pay you to take out a loan right?  Long all things physical then.

kridkrid's picture

those are the only 2 choices. Understanding that these are the only 2 choices does allow for things to make a little more sense. My only objection to your post... it wasn't their pathetic, myopic, self-serving "leadership" that created this predicament. Don't get me wrong... they are sociopathic criminals... but the this ball was set in motion long ago.

Manthong's picture

The wheels were put in motion in 1913, but the brakes were removed the day Kennedy was shot and nitro-methane was injected into the combustion chambers when Brooksley Born was squelched which opened the door to Clinton's parting CFMA gift to the Squid et al. 

Everyone in leadership has had an opportunity to stand up against the destruction of the formerly sound US Dollar. but partly through ignorance, partly though misdirected good intent and always with self-interest did leadership pass on fiscal discipline and responsibility.

Leadership and responsibility are inextricably entwined. They made the promises, They assumed the responsibility. They took the money. They bankrupted the country.

Default is never declared. Failure for elites is obviated. Now, only lies and fraud maintain the system.

With only a very few exceptions, leadership owns this.

Hedgetard55's picture

Eggsellent point, MD... uh, I mean Professor.

Confundido's picture

I see you are implying that the regulation of the money supply today, under Chairsatan Ben is actually unbiased....I am sorry...what assets do they buy to expand the supply? Bonds from Wal-Mart? from Ford? Or from the Treasury?...who do they buy these bonds from? Directly from the Treasury? Or from JPM or Goldman Sachs? Can I sell my stock of Treasuries to the Fed at a discount? Will I be able to bid directly for the Fed's assets the day they want to unwind?

Dr Paul Krugman's picture

The Federal Reserve Board have been given a mandate to regulate the money supply by Congress and they are just doing their job.  Since we are in a depression and unemployment is still high economics dictates we need to increase exports to increase GDP.  The Fed is doing this by buying bonds and expanding their balance sheet so to add to demand and make sure that supply does not overwhelm the markets.  If they were not doing this then there would be another financial panic, and then unemployment would go higher.

This exactly what we don't need to happen, and if Congress was in charge instead of being focused on doing what the science of economics dictates, they would be doing whatever their constituents demanded, and their constituents are not economists.

EscapeKey's picture

Yes, because beggar thy neighbour has always historically worked out so well (*)




(*) I might be fibbing here

SafelyGraze's picture

"The Federal Reserve Board have been given a mandate to regulate the money supply by Congress and they are just doing their job."

let's leave the legal interpretation to lawyers and lawmakers regarding what mandate(s) Congress may or may not have given the Fed. 

this is not a question for economists to address.

if Congress says the Fed must answer some questions, then the Fed, per force, must answer them. Or else be in contempt of the Congress that established it.

The Fed, of course, could appeal this issue to the courts. which would certainly clarify the matter to Congress.

If the courts decide that Congress doesn't have the authority to collect information from the Fed, then Congress can easily remedy that deficiency by adding a single sentence to the statutes, or by eliminating the Fed altogether.


clymer's picture

krug / mdb:

you complete me

SafelyGraze's picture

that was a beautiful thing to say

kridkrid's picture

The irony of your satire is that the absurdity is mostly true. The only lie is the assertion that this policy choice will "solve" anything. It won't. We still collapse... but we collapse at a slightly later date. Time to hit the reset button... but that won't happen.... so we'll get war.

Agstacker's picture

Economists got us into this mess, Dr. Paul.

Meat Hammer's picture

The Federal Reserve Board have been given a mandate to regulate the money supply by Congress and they are just doing their job.  Since we are in a depression and unemployment is still high...

Brilliant, you explain the cause and effect in two sentences.  The cool kids call it "the failure of central planning".  

Then you propose your solution as more of the same!  I'd like 5 minutes alone with you and a rubber hose.

How do I get one o' dem fancy phd's?

MillionDollarBoner_'s picture

Hi Paul,

Article 1, Section 8:

"The Congress shall have power...

To coin money, regulate the value thereof, and of foreign coin, and fix the standard of weights and measures;

To provide for the punishment of counterfeiting the securities and current coin of the United States;"

Ring any bells? As an "economist", how would you define QE? Specifically in the context of "counterfeiting the securities and current coin of the United States"?

slightlyskeptical's picture

I agree the Fed needs to pump up the money supply. Unfortunately that pump is not getting the money where they need it. I think the next thing they should do is this:

I propose that the government buy every existing primary home mortgage in America. Refinance them at decent terms, even cutting some principal for those underwater. By the time they get paid off government will have recouped all their money plus about 25%-40% in profits. Use those profits to reduce our national debt.

Once you have everyone refinanced, then start a program where every new primary housing loan is issued by the government. Do it through social security, giving them a credible income stream and letting another government program finance what social security cannot. Profits the government makes goes toward paying off current debt, reducing the need for new debt.and will allow a lower tax rate. people thinking about stiffing the government better think again as any failure to pay your mortgage will reduce your social security benefits down the road.

Banks and investors? It will hurt them but they will get paid in full on their loans outstanding. They will still be able to make second property, personal and business loans but no more fleecing the people on mortgage loans. They would still be eligible to make money originating primary loans on behalf of the government and servicing them. Better yet - Fuck the banks!

I can think of no downsides and the upside is more disposable income for families, less taxes and investors being forced into more productive endeavors in order to get their profits. All good for the economy.



venturen's picture

I have a better idea. Dissolve Freddie and Fanne and the other 12 programs that absolve banks from worrying about losses. Pass a law that anyone can walk away from a mortgage.  TODAY! There are plenty of programs that directly help the poor to have housing.Break up all banks the big banksJP Morgan, Goldman, BOA. Limit the markets that banks can be in at the same time. Being a market maker and broker and trader and M&A and retail shouldn't be allowed. The Federal Government removes itself from the mortgage market and God Forbid let the Capital Market measure risk while taking on some. Instead we have Taxpayer taking the risk and some stupid "banker/trader" getting the profits. Increase the size of the FDIC by hitting the banks with bigger fee. What moron wants massive house prices that people can't afford? Won't people rather enjoy their money than being like some fooi Japanese buying a sq foot of property for $50000?

Guy Fawkes's picture

Dr Krugman,

In order for Keynes formula to be viable the government must extract revenue from the labor/corporate class to replace the spending from the private sector.

I ask you then should this formula:

Y = C + I + G - (Net X)

be MORE acurate if it were written as

Y = C + I - (Net X) / G


God Bless The Virtuous's picture

Fuck you Krugman you peice of progressive shit!

Now you are out there with "we'll have to raise taxes on the middle class and instute death panels", you rat bastard!

My contempt for you and the communist in chief and his minions is without proper words!

Bill Clinton should be proud of the piece of shit he expelled from his progressive bowel at the democratic convention with the now out of control demigod who believes his own shit smells like roses!

Hey Barry, it's nice and hot in hell ,with the rest of your scumbag fellow liberal / communist / progressives who have a front row seat reserved just for you, yeah Teddy boy, Bobby Byrd and Jack-off Murtha are dying for your arrival.

You time will come one day and the Republic will rise again like the phoenix from this progressive onslaught led by charlatans like the biggest dick running the shit show today Paulie the prick Krugman!

Thank God for the first amendment!

God save the Republic and please forgive my gutter mouthed tirade, I just had to get this off my chest, forgive me Lord!

donsluck's picture

Since Lord (whoever that is) is not available, I forgive you. However, don't forget Clinton gave us "surplus" and Bush raped us blind. Obama of course is continuing the rape. In other words, liberal and conservative have lost all meaning in this kleptocracy.

nightshiftsucks's picture

Clinton gave us the tech bubble,the repeal of Glass-Stegal and the failed assasination attempt on Bin Laden.A lot of everything going on can be blamed on him.

nightshiftsucks's picture

It will be a terrible day for you fat boy if I ever get my hands around you fat fucking neck

Meat Hammer's picture

The Fed is doing what they are mandated by law from Congress to do.


How about we talk about that there law from Jekyll Island and why there aren't people swinging from light poles?

Joe Sixpack's picture

" It will be a horrible day when Congress...begin to regulate the money supply..."


So, basically you are saying, 'fuck the constitution'?

Blankenstein's picture

Yes let's put the fate of our economy in the hands of a bunch of PhD economists.  It worked out so well for LTCM.  


And wasn't it Greenspan who started blowing the housing bubble when he kept the interest rate low for an extended period of time and now The Bernanke is continuing this failed policy?  


And let's see how well The Bernanke did at predicting and recognizing problems in the economy:

MillionDollarBoner_'s picture

Hi Paul,

I think you have hit the nail right on the head. Bravo to you, Sir!

" that their constituents - who are not economists - vote for them again."

Ya see, its like this. Ordinary folks have to vote for those who promise to improve their lot (whether that actually transpires or no). They have responsibilities and consequences. So what if they only get to choose between a Giant Douche and a Turd Sandwich?...when your kids are hungry, a Turd Sandwich is better than nothing. They gotta get by somehow.

Unlike the dickless cheese-brain so-called "economists", suckling at the always-overflowing gubbermint teat, who have never done an honest day's work in their shortage of food, hoes and blow there, my friend...

MarsInScorpio's picture

I can't help but wonder . . . how many of the down arrows don't get the idea that this poster is a satirical writer?


So if you vote red, you are saying that the satire is objectionaable, and that you don't get it - while the truth is that if you do get it, then you'd be voting green as an applause for the quality of writing.


Why is that satire on ZH so often goes right over the heads of ZH readers . . . ?


papaclop's picture

That sounds way too intelligent than anything Paul "aliens" Krugman could come up with.

101 years and counting's picture

perhaps ZH should send the analysis over to Jim Jordan. This could be done in minutes vs decades it would take for the PhD's at the Fed to calculate.

socalbeach's picture

If they do they better double check their arithmetic, pretty sure it was off.  It would be a coup for the Fed and make ZH look bad if a Congressman were to quote a ZH article that the Bernank could find an obvious mistake in.

Serfs Up's picture

Yeah, the SUBcommittee on somethingsomethingsomething... I am sure the Fed is carefully considering all the ways to further convey the sound of chirping crickets to the Honorable members of that obscure, toothless SUBcommittee.

tarsubil's picture

From what I can see, the answer will be, "Okay, already, we'll give you the contract for needlessly upgrading tanks in your district." It is all a game.

A Man without Qualities's picture

Can you imagine the comedy if Bernanke had to explain VIX to Maxine Waters?



BoNeSxxx's picture

Coffee laugh through the nose... not good but soooo worth it.

Thanks for that.

nope-1004's picture

Maxine Waters is a legend.  She is a true representative of her constituents:  Dumb.


Taffy Lewis's picture

You're talking about Maxine "I marched because my mother couldn't have an abortion" Waters?

Professor Fate's picture

Can't stop laughing.  The image is stuck in my mind. That would be another Hank Johnson "Guam Capsizing" moment.  I'm hoping to see a Jeff Dunham "Maxine Waters" puppet.

Fate the Magnificent

"Push the Button, Max"

NRGIsFree's picture

I think it is $88.5 Billion per month not $885 billion. Unless of course we are looking ahead a year or so.