Chart Of The Day: The Fed's Taper In Perspective

Tyler Durden's picture

Back in September 2012 we forecast that absent major changes, the Fed's security holdings, which then were under $3 trillion, would hit $5 trillion by the end of 2014. One possible "change", and the topic that has consumed the market and pundits over the past month, and led to a spike in equity vol, has been whether or not the Fed will taper its purchases of securities from the current $85 billion per month, to a lesser number, in the process reducing the liquidity "flow" injected into risk assets via Primary Dealers. The prevailing consensus appears to be that Bernanke may trim the monthly number by about 25%, and lower the monthly purchase quota from $85 billion to $65 billion, with an announcement due at the September 18 FOMC meeting. So assuming this is correct, and Ben does as expected, what does this mean? The chart below shows the unprecedented calamity that such as "drastic" move by the Fed would lead to...

The black line is how the Fed's security holdings are projected to grow assuming the status quo; the red dotted line is what would happen in the case of the dreaded Taper: instead of ending up with $5 trillion in AUM at December 31, 2014, Ben Bernanke would have just $4.7 trillion.

Apocalypse now? Because the tiny delta between the black and red lines is what is nowadays seems to be the biggest threat, giving the market daily indigestion and desperately trying to decode with the Fed's presidents are saying at their every public utterance.

So what will happen to stocks when (just kidding) the Fed actually stops, or even begins to reduce its gargantuan balance sheet which is just under 25% of US GDP?

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TheFourthStooge-ing's picture

Mmmmmmm, that's some good free market capitalism you've got going there, Ben.

MillionDollarBonus_'s picture

Does the Free Market Produce Prosperity?

         A Comprehensive Research Paper

There are a number of articles investigating the relationship between deregulation and economic prosperity, but very few studies reference the unintended consequences of laissez faire capitalism. This research paper by Alan Krueger, Obama’s chief economic advisor, suggests that a decrease in the minimum wage could result in a reduction in income[1].

Despite the claims of many libertarians that the free market favors the poor, the academic literature continues to question this proposition. Either this is a strongly contested or under-researched economic issue, or the science has not been widely disseminated amongst economic educators and publicists. This study aims add some clarity to the question of whether the academic literature does in fact support common libertarian beliefs about the virtues of the free market.



bnbdnb's picture

Power determines means, not money.


Stupid paper.

nope-1004's picture

If that "tapering" is considered responsible monetary action, and if it actually comes to fruition (which I don't believe it will in reality but may in more press release lies), then Bernocchio truly is a dumb dumb.

MDB need only look at how effective the current economic experiment is.  More intellectual references are useless at this point.  The economy is headed into a black hole.  Bernocchio is leaving because he is a failure and he damn-well knows it.


Badabing's picture

Can you say exponential?

Our Ponzi system is based on growth. As the GDP increases they add to the money supply or we would experience deflation.

But my fellow ZHers as we know, this is all fake, we have no GDP. If they stop or even slow down the bailouts the system would implode and as they print they devalue the currency and have to print more.

They are caught by the balls and cant get loose. Hold your gold/silver and wait it out is all we can do.

Fucking Banks!

down Vote? did i spell something wrong?

imaginalis's picture

Academic Literature - Oxymoron?

kridkrid's picture

I didn't down vote you... but I think you have some things ordered incorrectly. The GDP is measured in dollars, correct? So wouldn't rising money lead to rising GDP, not the other way around? And they don't merely add to the money supply... they loan debt into existence. That's money... it's not some arbitrary unit created to match economic growth.

GDP is a horrifically misleading statistic... by design. Most statistics that act as some sort of "leading indictor" or are supposed to represent the general health of the economy are misleading, again, by design. Our Ponzi scheme is our monetary system (money = the creation of debt+ interest with fractional reserve banking + shadow banking). Inside of that exists a real economy where goods are bought and sold, but all of that can and will come to a screeching halt when the monetary system collapses.

Badabing's picture

+1 So you’re saying that as the dollar looses value, it makes it look like we are producing more? Interesting, but I guess that’s part of the paper problem.

GDP is what we produce like a bushel of apples. I know we produce dollars also regardless of debt or not, but that is our medium of exchange and not product. If we double our product without increasing the money supply we have deflation. This is the flexibility that fiat has and has been abused by TPTB.

kridkrid's picture

I think you are confusing what you believe money should be and what it actually is. While you and I do use money as a medium of exchange, that isn't what it is fundamentally. You say we produce money regardless of debt or not. That actually isn't true. We produce money in the form of debt. We do it when we sell treasuries and banks do it when they issue loans. Virtually all "money" is a loan. The interest that is paid on that debt is how the oligarchs extract our labor from us.

The system is created in such a way that aggregate debt can never decrease, therefore the cost to maintain the debt must continue to expand until it kills the productive economy inside of it. When people want to complain about income inequality, this is where it is. Banks literally create nothing, but look at the names written on the big buildings and sports complexes in all of our major cities. Look at the percentage of income from the financial services sector of our economy and how it has grown over the past 40 years. All propaganda is meant to keep these truths away from our understanding.

Badabing's picture

I totally agree with a dollar created into debt but that dollar also becomes part of the money supply.

Look at the percentage of income from the financial services”

I do look at the income, but I see no product.

“All propaganda is meant to keep these truths away from our understanding

So true.

With all the commotion it’s hard to see how the big money is made, sure fractional reserve banking is lucrative, but exporting inflation is where the big scam is. As a reserve currency of the world we have to match or slightly inflate in respect to upcoming nations GDP. What happened this time is the world just stopped and that coming to a standstill removed the curtain from the wizard and reviled how they now change the rules on the fly, like it’s normal, and the sheep blindly follow.

spine001's picture

To be fair to the argument (not to Bernocchio, love that name), Bernocchio said that QE WAS NOT going to work repeated times during his reports to both chambers of Congress. He always indicated that monetary policy alone couldn't do the trick and that a looser fiscal policy was needed in the short term with a longer term (10 years) rebalance to at least project the illusion of fiscal deficit growth reductions.

Congress, as expected paid no attention to it. His fault lies in the fact that HE WAS indeed told by Congress that they were not going to do anything unless he stopped QE and created a crisis. While the crack keeps on flowing the party goes on and on and on... Well, he hasn't stopped it, so NO surprise, even to Bernocchio that the party is still on and that his policies have not worked, HE KNEW they wouldn't. With regards to Congress, he was told in very clear words that nothing would happen.

The short answer to this mess is that the current democratic system is failing all of us... Not necessarily the people but the structure under which they work.

Until next time,


prains's picture

MDtransvaginal mesh

what do you call a liquidity trap where interest rates are low AND savings are low ? I call it a liquidity bomb, tick tock

Stuck on Zero's picture

Academics doing valid economic studies?  Never happened.  Never will.


Go Tribe's picture

Of course the government literature continues to question this proposition. That's "comprehensive resesarch?"

Pairadimes's picture

This is like waking up on a rainy day and questioning whether sunlight ever really made the plants grow. it requires a special brand of stupid to construct a worldview such as this within plain sight of the obvious truth.

moneybots's picture

"Despite the claims of many libertarians that the free market favors the poor, the academic literature continues to question this proposition"


There is the problem: academic literature.

AssFire's picture

The landing ramp will need to be moved 2" closer since we are going off the cliff at 270mph instead of 271mph.

Unfortunately, the landing ramp is inside the volcano's crater melting in FSA magma.

dontgoforit's picture

Good description, A-fire.  Like would you like a .357 or a .44 magnum for that shot to the head?

LawsofPhysics's picture

The price of gold and yields must go down.  "Market" and yields moving together;

expected, welcome to the "new normal". 

Thisson's picture

The price of gold is usually inversely correlated to yields.  If yields go down, we should expect the price of gold to increase (the opportunity cost of holding gold becomes smaller)/

Herd Redirection Committee's picture

Big Brother is selling gold and buying treasuries.  He wants you and me to mimic him.  Get in on the action.   Be a part of the 'winning team'.

I hope they let me know how it turns out for them.

Dewey Cheatum Howe's picture

The taper going on right now is down to levels that he actually says they are buying aka stealth tapering since when you add up all their purchases it has been above the 85 billion a month they say they are buying. Do the math........

LawsofPhysics's picture

How does one "do the math" if the numbers are bogus to begin with?

dontgoforit's picture

Well, you take a couple of them thar fuzzy caterpillars and yeh dip 'em in paint, and then ya' turn 'em loose on a blank sheet of paper.  If the one in red makes it to the bottom first, you goin' ta' hell.  If the one dipped in blue makes it first, ya' goin' to hell.  There ya' go - we're goin' to hell.  Simple math, you know, first grade stuff an' all.

Dewey Cheatum Howe's picture

Yes and distorted logic that allows you prove that 7 x 13 = 28 ala Abbott and Costello.

One of the funniest bits they ever did.

Same logic applies to 25 divided 5 equals 14

Dewey Cheatum Howe's picture

Just add up the purchases for each auction on the bond market alone, let alone the MBS. Bogus or not if bogus you'd at least think they would massage the numbers to reflect the narrative they are passing off as reality.

LMAO's picture



The Feds' business is not to Taper but  to Tamper

Dr. Engali's picture

By the time September rolls around the fed will be talking about  the need to protect their holdings from interest rate risk and diversifying their portfolio  into soveriegn debt.

ArkansasAngie's picture

They are already there.  The money printing isn't going here.  I(t's landing in Europe's banks who are buying soveriegn debt. 

Dr. Engali's picture

Yes the foriegn banks are buying soverign debt thereby making the fed an indirect holder, but the next move will be for the fed to take it directly onto it's balance sheet.


Central banks balance sheets.

kaiserhoff's picture

Wouldn't it be nice if we had an audit?

Remember those?


Winston Churchill's picture

What on earth so you think an audit would achieve when you can mark assets to phantasy

'modelled' values.

5 years and how many trillions later  TBTF are still bankrupt,and now are the sovereigns as


Just awaiting the coup de grace,which seems close.just one black signet away.

Herd Redirection Committee's picture

Well, that is assuming the accountant is allowed to question the valuation model and ask for other, you know, standards, to be used.

Like Mark to Market, Cost Basis, Replacement Cost...  What is the market value of MBS?  US Treasuries?  What did the banks pay for them? 

dontgoforit's picture

Ok, good point.  So, if the dollar is still solid and they're all winding up in foreign banks, does that mean we plan to 'buy' the world with them?  Why not, then?  We can be the United Countries of America.  UCA all the way; UCA all the way.  Kind of like, 'Hell no, we won't go' from the '70's.

LawsofPhysics's picture

Unfortunately, the debt-servicing is a real problem.  Unless of course, the entity that owed that debt no longer existed.  See what happend to the Soviet Union in the 80's and 90's for reference.  Post collapse, the Soviet Union died, and so did all the debt.  Why won't the collapse of the Corporation of the Unitied States be any different?  Everyone ran away from the ruble then and everyone is running away from the dollar now.

Herd Redirection Committee's picture

I love reading about the collapse of the Ottoman Empire, the end of Rome, the fall of the Soviet Union...  You feel like you are reading the newspapers from the future  :)

LawsofPhysics's picture

So, just like what was occuring before the great depression and WWII.  Awesome.

the grateful unemployed's picture

my bet is Japanese bonds, the carry trade is on

101 years and counting's picture

dont worry, once stocks plunge because of the taper, the Fed will not only go back to $85, they'll make up for the lost reach arounds so they do hit the $5 trillion, 30% of GDP by end of 2014.  Cheers, mates.

dontgoforit's picture

Who really knows how much they're pumping?  They probably have six sets of books, "The Book of Ben" - that's the really bogus one, the one shown to the public.  "The Book of Alan" - older version, still looks good in fine condition, no broken spine or torn pages.  And of course, "The Book of Paul" - the one that opened the door to the current editions.  Wonderful stuff if you're into money-fiction.  They could be buying $85bn/month or $585bn/month.  Who knows?

Truther's picture

It's WAR BITCHEZ......Fuck you Bernancke.


Headbanger's picture

I think we will get a massive fusion reaction from the implosion caused by the Fed unwinding its balance sheet.

And is that... r r r r r RED I see now!!??     

RSloane's picture

Yes it was, for a few seconds.

JJ McApe's picture

People, I would trust a FED banker about as far as a 10 foot pole. They have done nothing but promote risk, instability and speculation. They should be promoting savings and stability rather than debt but they are the great illusionists of the world. They make everyone think they are promoting growth while promoting the seeds of destruction.

rqb1's picture

They are just saving their shareholders.

kridkrid's picture

"Taper" and "Austerity" are similar lies... misnomers at best... but really they are lies.