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The Fed's Choice: A Balance Sheet That Is $4.5 Trillion Or $5 Trillion... Or Much More

Tyler Durden's picture




 

Now that an October taper is out of the question, bored investors, in a world in which fundamentals no longer matter, are looking forward to the next possible FOMC meetings and potential taper announcement dates, with three specific dates sticking out: December/January, which are really one cluster, and June, as possible announcement dates. Why are these dates important: because while a September tapering announcement would have resulted in a $4 trillion final Fed balance sheet (assuming the tapering proceeded to a full QE halt) before even more QE was unleashed, any subsequent taper dates imply a nice round number to the final Fed balance sheet at the end of 2014: either $4.5 trillion, assuming a January 2014 taper, or $5 trillion if the Fed waits until June to announce a tapering.

This can be seen on the following chart from Bank of America.

BofA commentary:

Markets will be especially focused on the discussion around the timing and conditions of tapering. Our Chart of the day illustrates three scenarios, the first of which is a useful reference despite not actually happening: a September 2013 start to tapering that follows the June “framework” laid out by Chairman Ben Bernanke for a mid-2014 end to asset buying. In that case, the Fed’s asset holdings would have grown to around US$4tn. A January start and a slower pace of unwind results in nearly US$4.5tn in Fed assets, while a June start (and similar slow pace to conclude) yields nearly US$5tn. Those are sizable differences.

Another way of seeing the change in market expectations, is the following chart which shows what the current tapering path looks like.

There is of course an increasingly likely third possibility: forget $4.5 or $5 trillion - with increasing chatter of a Fed that is prepared to unleash NGDP targeting, or as it is better known without its technical term: even more turbo printing in an attempt to unanchor future 2% inflation expectations, the Fed's balance sheet may just grow forever and ever.

And with every passing day in which the Fed demonstrates a complete lack of concern about the collapsing pool of high quality collateral which the Fed monetizes at an ever faster daily net basis, this becomes the most probable outcome.

 

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Thu, 10/31/2013 - 10:41 | 4108503 FieldingMellish
FieldingMellish's picture

Untaper. $100B/month by March.

Thu, 10/31/2013 - 10:50 | 4108535 Manthong
Manthong's picture

I’ll take “Much More” for 6 Trillion, Alex..

Thu, 10/31/2013 - 11:02 | 4108553 y3maxx
y3maxx's picture

Fed has the only American Debt that is "Repayable". Western Canada will be Annexed and all its foreign owned Natural Resources and Industry will be Nationalized by Amurika.

Thu, 10/31/2013 - 11:03 | 4108575 Thomas
Thomas's picture

Top graphic seems to imply a cold-turkey untapering in spring. That will happen around April, 20...never.

Thu, 10/31/2013 - 11:11 | 4108601 banzai401
banzai401's picture

Yep, in April Obama will take Cheney's dick out of his arse, ... yeh right, ...

Thu, 10/31/2013 - 11:29 | 4108635 insanelysane
insanelysane's picture

"Untaper. $100B/month by March."

Actually true since $100B in March will only be worth $75B as compared to the prior March.  FED will still insist there is no inflation while stating that they must untaper to counter a weakening dollar.

The sheeple consume what the are told.  Independent thought is work and must be avoided.  Please pass the iCrap with some of those Kardishpeeps on it.

Thu, 10/31/2013 - 11:35 | 4108661 Herd Redirectio...
Herd Redirection Committee's picture

"Trust the experts"

This politics, finance, economics, and history stuff is too complicated to be left to ordinary citizens to worry about.  Trust us.  Trust the experts.

Thu, 10/31/2013 - 11:50 | 4108714 Headbanger
Headbanger's picture

Nope.  Looking more like it's "taper on" according to the 10 year Treasury yield spiking higher:

http://www.marketwatch.com/investing/bond/10_year

Thu, 10/31/2013 - 13:20 | 4109004 Panafrican Funk...
Panafrican Funktron Robot's picture

It is erroneous to assume that the 10 year is spiking higher because tapering is likely.  It's more likely that the 10 year is spiking higher because of rapidly weakening demand.  QE is, in a nutshell, a publically funded program to prevent the collapse of derivatives that have a basis in the 10 year UST rate (read: most of the derivatives market).  Each basis point (1/100th of 1% for layman) is a $2 billion dollar move in the derivatives market.  There is some significant pain above the 2.5% rate on the 10 year (it's currently around 2.55%, was non-trivially higher during the last "taper talk" period).  There are very likely bank failures above the 3.0% rate.  The Fed will buy any/all UST's necessary to keep the 10 year at or below 3%.  This has not had the expected effect of increasing outside demand for UST's based on that Fed backstop, in fact, it has done the opposite, because the real (not nominal) value of a 10 year UST note at current yield is substantially negative.

http://research.stlouisfed.org/fred2/series/BASE?cid=124

To put it in a less technical way, we are in the early stages of hyperinflation as the world moves away from accepting the US dollar as the reserve currency of choice.  The international community is rapidly losing confidence in our fiat currency, and our domestic community has yet to really catch up with that reality.  Think Game of Thrones here: winter is coming, bitchez.

Thu, 10/31/2013 - 13:26 | 4109013 Herd Redirectio...
Herd Redirection Committee's picture

The domestic community doesn't even know the international community exists, or can have an impact on them!  Its going to be ugly, my question is, what disinfo will they offer up on the teevee?

Thu, 10/31/2013 - 13:57 | 4109132 Panafrican Funk...
Panafrican Funktron Robot's picture

The supply of sufficiently intelligent brown people living in poverty, who can be bought off to suicide themselves for a token payment, is virtually limitless. 

That said, there seems to be efforts more recently to demonize white males who aren't "with the program", so I wouldn't rule out a repeat of the McVeigh script, followed by a bump up in domestic surveillance (if that's even possible?) and further push towards "sustainability", ie., re-setting the perception that we deserve anything more than a cinder block apartment with a place to shit, sleep, and watch television, while eating our heavily modified/mass produced/poisionous "meals" so we die quicker and blow all of our remaining wealth on unnecessary medical treatments and devices.  I think anyone can see how incredibly well that's working. 

Thu, 10/31/2013 - 11:21 | 4108624 gjp
gjp's picture

That must be why gold and silver are down 3%-6% from pre-FOMC yesterday and stocks are down all of 0.5% max.  Makes sense.

Thu, 10/31/2013 - 13:38 | 4109055 Panafrican Funk...
Panafrican Funktron Robot's picture

Precious metals and other items of real, tangible value will remain muted in USD price as long as the Fed puts off the day of reckoning.  The scale of that day of reckoning increases with each passing delay.  View this as a gift that allows you to exchange pieces of paper/numbers in a computer system for all manner of items of real, tangible value (precious metals, weaponry, durable/sustainable food/water sourcing, practical skills training, etc.).

 

Thu, 10/31/2013 - 10:57 | 4108555 Ham-bone
Ham-bone's picture

All it would take to return the Fed's balance sheet to it's pre-GFC of '08 of $500 B (primarily in T-bills) is 48 months of $100 billion selling / rolloff (assuming $5 T balance sheet in 2015 - this means that by 2019 the market is "back to normal")...sounds totally plausible.

Thu, 10/31/2013 - 11:02 | 4108573 Antifaschistische
Antifaschistische's picture

On a Balance Sheet is Assets which are 'balanced' by Liabilities and Owners Equity.    So...what's swelling on the right hand side of the "Balance Sheet."   is it a liability?   or is it Owners Equity.   And who is the real owner?   If the FED is swelling "equity" through QE then all they're doing is confiscating wealth through counterfeiting.   So, why would they have any incentive to stop that once the Sheeple have allowed it. 

Thu, 10/31/2013 - 11:15 | 4108606 Bam_Man
Bam_Man's picture

The liabilities created by the QE asset purchases are "Excess Reserves". These are essentially "deposits" of Federal Reserve member banks.

Thu, 10/31/2013 - 11:18 | 4108612 all-priced-in
all-priced-in's picture

When the FED prints up digital dollars and uses them to buy securities

 

The securities purchased show as an asset - the dollars put into circulation are booked as a liability.

 

 

Thu, 10/31/2013 - 11:42 | 4108686 Herd Redirectio...
Herd Redirection Committee's picture

For a long time I thought the 'transmission' mechanism for inflation would be, for one, the government, and secondly, when banks start lending.

Now, obviously we are still waiting for banks to start lending.  Now I don't think that will be the transmission mechanism.  The banks know lending the money, to small business owners or Jolene Sixpack's home reno, will result in inflation.  In the price of goods that those loans are used to buy. 

So the other option, if they aren't going to lend the reserves, is to use them to purchase assets (and equity stake) directly.  We see this on the stock market daily.  So in my opinion, the banks will buy up as much assets directly (as opposed to the more old school, "extend a loan, grab the collateral on bankruptcy method") as they can, and afterwards, the price of goods (provided by purchased asset) will get jacked up.

Moral of the story:  Now is  NOT a good time to sell income-producing assets to banksters.

Thu, 10/31/2013 - 11:47 | 4108702 Bearwagon
Bearwagon's picture

I'm not an expert, but I think the money could at least partly be used to reduce the leverage of several shadow banks, too.

Thu, 10/31/2013 - 13:48 | 4109099 Panafrican Funk...
Panafrican Funktron Robot's picture

This is correct, hence the flow into excess reserves.  Cuts to loan-loss reserves that make up the bulk of reported "profits" are made possible by these deposit flows into the excess reserves bucket at the Fed.  This allows the banks to continue to crash (via deleveraging/write-offs/tightening lending) without actually crashing (via bankruptcy/takeover).  There is some token cash thrown at the stock market, but if that was really the primary flow recipient, it wouldn't be moving up 40% slower than the Fed's adjusted reserve base (ie., crashing 40% in real terms) since March 2009. 

Thu, 10/31/2013 - 11:22 | 4108620 Sutton
Sutton's picture

Kidding,right? I'm dense. Sorry

Thu, 10/31/2013 - 11:22 | 4108622 Sutton
Sutton's picture

Kidding,right? I'm dense. Sorry

Thu, 10/31/2013 - 10:57 | 4108560 bubblemania
bubblemania's picture

Bullish

Thu, 10/31/2013 - 10:41 | 4108504 pmbug
pmbug's picture

QE to infinity?

Thu, 10/31/2013 - 10:42 | 4108506 philosophers bone
philosophers bone's picture

False Dichotomy

Thu, 10/31/2013 - 10:43 | 4108508 Oldwood
Oldwood's picture

They are tapering now. Every dollar they create is worth less than the last one.

Thu, 10/31/2013 - 10:46 | 4108519 LawsofPhysics
LawsofPhysics's picture

"They are defaulting now. Every dollar they create is worth less than the last one." -  FIXED

http://research.stlouisfed.org/fred2/series/BASE/

 

Thu, 10/31/2013 - 10:49 | 4108528 Doubleguns
Doubleguns's picture

The defaulting started 17 trillion ago. We just have not figured out how big the default will actually end up being. 

Thu, 10/31/2013 - 10:54 | 4108545 LawsofPhysics
LawsofPhysics's picture

Ignore all "price" in fiat.  Such liquidity/credit can be "fixed" in an instant with a few clicks of a keyboard.

 

With 7+ billion all competing for the finite resources and enery required for a better standard of living, there will be no escape from the coming calorie shortfall.  Unless you are living on 100% of what you produce in a secure location of course, and even then it might be a crapshoot with events like fukashima.

Thu, 10/31/2013 - 10:54 | 4108549 Manthong
Manthong's picture

They are deflating now, every hour you work is worth less that the last one.

(FIXED for the 1%)

Thu, 10/31/2013 - 10:58 | 4108561 LawsofPhysics
LawsofPhysics's picture

Bullshit.  The hard assets of my tribe/business continue to grow, just like the food we produce.

Deflation is a myth as no society/currency has collapsed/died because their purchasing power became too strong.

ignore all fiat, a fucking can of beans will have purchasing power when it comes time to raise an army from the starving masses.

The "debt is money" system of the earth is choking on it's own "success".

Bring it motherfuckers.

Thu, 10/31/2013 - 11:24 | 4108629 game theory
game theory's picture

If your hard assets are growing, why are you worried about inflation? In this environment, hard assets are growing faster in value than anything else.

 

Thu, 10/31/2013 - 12:48 | 4108841 LawsofPhysics
LawsofPhysics's picture

I am not worried about any "flation", this the point (made-up words etc.).

liabitlites (most of which that aren't mine)?  Now that's another story...

Thu, 10/31/2013 - 10:53 | 4108542 Magnix
Thu, 10/31/2013 - 10:54 | 4108552 LawsofPhysics
LawsofPhysics's picture

What is the real "price" of something backed by nothing?

Tick tock motherfuckers...

Thu, 10/31/2013 - 10:43 | 4108510 Chupacabra-322
Chupacabra-322's picture

Where's my free money? Oh ya, that's right. I'm not a part of The Global Criminal Oligarch Cabal Bankster Inteelligence Crime Syndicate.

Thu, 10/31/2013 - 11:10 | 4108599 banzai401
banzai401's picture

The new game is completely clear,

Unless you can or are willing to declare ZERO INCOME

Your are fucked,...

Smart Guys will play along and declare 'zero income'.

Thu, 10/31/2013 - 14:13 | 4109175 gatorengineer
gatorengineer's picture

or a minority or illegally here.

Thu, 10/31/2013 - 11:05 | 4108517 Bearwagon
Bearwagon's picture

In a world in which fundamentals no longer matter - I tend to issue a stern warning to everyone who likes to listen to a bearwagon's thoughts. This could be regarded as a rant:

Each time I try to warn that we are in for a very bad surprise, I regularly get threatened and molested( not here at ZH). I get called a spinner, a crook or an idiot, a racketeer who wants to bar decent citizens from investing their hard earned money in the sole and last realm where any revenue is to be expected. I'm being "loved" in a quite burdensome way.
The Stalingrad & Poors 500 is at or in sight of the upper trend channel from two years ago. On daily basis it is clearly overbought, even so on a weekly basis. There is no hard relation between economic growth and capital gains. Recent data have mostly been dissatisfying (e.g. the european PMI). And risen interest rates at the capital markets won't do any good in this regard. Untaper and the ever rising avalanche of funny money are in no way an argument against a drastic correction.
Many quarterly financial statements have been disappointing. This fact just isn't widely recognized, because the bulls only watch exploding prices of stocks like Microsoft, Amazon or Google. Their rise in the market shows no relation to performance. This prompts the escalating foolishness of the bullish protagonists further.
The current sentiment shows that the number of such bulls is at a year's high. There's only a tiny fraction of neutrals, and the number of bears is decreasing. What seems to be positive, is in fact dangerous, because the "market" slowly but inevitably loses the buyers, all the more because there hasn't much profit-taking happened in the last two weeks (which would have had stabilized the trend).
According to my knowledge, a distribution of 80 % bulls, 20 % who regard a correction as possible and 0 % who think a trend reversal is possible, regularly marks the classic end of a trend, which is also true for the permanent upward correction of price aims which have long been reached without any real betterment.
I don't go so far as to predict a trend reversal, I just state that I see a massive need for a correction. This need for correction will, as logic as well as the history of stock markets show, not be satisfied with a comfortable lead time, but probably all of a sudden. A lot of people strongly disagree with me on this, and their argumentation is mostly the same ...
"Markets will keep rising, as long as rates are low, because there just is no alternative."
"The market does what it likes, so there never is a real boundary for rising prices."
"And, as I of all people should know, there never is a correction when you expect it."
Well, I don't want to sound all too precocious, after all I'm still a newbie. I'm only watching this show since the nineties, and not for 200 or 300 years, like some others who's knowledge clearly exceeds mine. And of course I am quite aware of my privilege as an author, to be mobbed by everyone.
Nonetheless, I'd like to raise a plea:

In the capital "markets" rates haven risen enough to not only impact growth negatively, but also to to offer an interesting alternative to a stock market which has risen very high (again).
The "market"does not what it likes to, but instead is itself nothing else than a projection of permanent shiftings between bullish and bearish participants. If there are exceptionally many bulls, they are already invested - otherwise they wouldn't be bullish. Sooner or later a point will be reached, from which on the demand begins to diminish. As long as the offers don't exceed the demand nothing is going to happen. But if the sentiment, which could hardly be better than now, tilts over, all of a sudden  very big offers will face nearly no ask. And that's exactly the point. If an index is overbought and profit takings are so low for weeks, that they can't even trigger any correction - then this can happen anytime.
A correction regularly doesn't occur when a majority of "market" participants expect it. But at the moment a majority of participants rule out a correction - which should speak for itself.
Same old, same old: If the bulls are in overwhelming majority, they not only feel safe, but also think they are right. But a lot of them are intelligent people, who know that the heaven is not full of promising stars, but shows lots and lots of warning signs. That's the reason they react very harsh to every person who dares to unrequestedly point out the drudgingly suppressed aspects. The more their depots are loaded with speculative crap, the more aggressive they become. The problem is, that the risks don't disappear, because they are ignored.
I have never claimed to know when or at what level the rise in the "market" will burst. Even under the current circumstances the S&P can go up further. Rising risk doesn't rule out a rise.
All I'm trying to say is that investors should be aware of risk and keep an eye open at night, instead of letting themselves be fooled by a false sense of "security". Those who know the real danger of the situation are willing and able to react resolutely and suddenly on time, when the rollover comes. That's necessary, because those who try to ignore the risks would react completely wrong, which means they would buy even moar, instead of heading for the exit.

edit: visualization, thanks to hugovanderbubble: http://image-store.slidesharecdn.com/d015a88e-4239-11e3-8d96-12313b12255...

Thu, 10/31/2013 - 11:17 | 4108608 Element
Element's picture

 

 

2007 = Buy very high

2008 = Sell very low + get huge public bailout

2009 = Congrats, you're a market-maker

 

 

2013 = Fear not, all is well.

Thu, 10/31/2013 - 11:19 | 4108614 Bearwagon
Bearwagon's picture

Okay, I have to admit: I didn't think of that.

Thu, 10/31/2013 - 11:48 | 4108705 Herd Redirectio...
Herd Redirection Committee's picture

Bearwagon, if they devalue the currency at 10-15% annually, the S&P ain't gonna crash.

Thu, 10/31/2013 - 12:04 | 4108760 Bearwagon
Bearwagon's picture

Absolutely correct. That is why I say that I don't know if it won't go up further. It can go up for quite a time (as long as they devalue the currency at 10-15% annually, for example), but one day, some day, one of these days ... it must come down. I clearly said I don't know when.

Thu, 10/31/2013 - 10:48 | 4108525 Hondo
Hondo's picture

Not matter what the Fed thinks it has authority to do at some inflection point the "natural rights" of the citizen supercede what ever man written document implies.  A citizen has a natural right to protect the rewards of his labor and by all mean possible prevent the State from impoverishing him.  The Fed is fast approaching this limit.......

Thu, 10/31/2013 - 11:09 | 4108594 banzai401
banzai401's picture

The 'fed' doesn't think, it knows the that USA public are a
a bunch of hairlip retards,...

The 'fed' knows they can do anything they wish, and there are an endless number of morons who will take helm to lead.

Where are they taking us is probably the better question,, places, but probably not places you want to go to,

Thu, 10/31/2013 - 10:49 | 4108526 Bryan
Bryan's picture

I think they should just ramp up the printing and just keep on pumping money out until unemployment is 1% and inflation is around, oh let's say 4%.  If the percents don't happen right away, keep on pumping more and moar and MOAR.  Focus on the goal.  There, see I could be a Fed Prez too.  Their job is so easy.

Thu, 10/31/2013 - 10:51 | 4108534 SheepDog-One
SheepDog-One's picture

Well it's not really 'money' after all, it's just imaginary bullshit....and besides the Clowngress is busily passing laws that say they and the Fed can just ignore debts and such. I mean, these people ARE 'Masters of the Universe' ya know, and hardly suited to get mired down in oogie serf issues such as 'debts'.

Thu, 10/31/2013 - 10:53 | 4108546 greatbeard
greatbeard's picture

As long as they keep gold capped, what does it matter? Gold is an indicator of the health of the dollar and obviously the dollar is doing great.  You pillow biters need to get with the program and join the party.  Nobody likes a spoil sport.

Thu, 10/31/2013 - 11:01 | 4108572 Winston Churchill
Winston Churchill's picture

A trillion here,a trillion there.Suddenly you are talking real money,gold that is.

When the rest of the world decides they have enough gold and the US has none,the

fun will begin.

"Gold is money,everything else is credit".

Thu, 10/31/2013 - 11:03 | 4108581 Bearwagon
Bearwagon's picture

Remember the golden rule: He who has the gold - makes the rules.

Thu, 10/31/2013 - 10:55 | 4108550 OwnSilverPlayMusic
OwnSilverPlayMusic's picture

Door number 3! Door number 3!

Thu, 10/31/2013 - 10:58 | 4108556 Vincent Vega
Vincent Vega's picture

"The Fed's balance sheet may just grow forever and ever." Bingo!

Thu, 10/31/2013 - 11:03 | 4108577 yogibear
yogibear's picture

With mark to fantasy bookeeping it's balance sheet doesn't reflect reality. Off balance sheet grows. 

Thu, 10/31/2013 - 10:57 | 4108558 trillion_dollar...
trillion_dollar_deficit's picture

I think whats most interesting about the first chart is the idea that tapering doesnt mean unwinding. Two distinct things who's implications Im sure havent really been fully examined.

$5TRILLIONFEDBALANCESHEET4EVA

Thu, 10/31/2013 - 11:06 | 4108588 Winston Churchill
Winston Churchill's picture

The Reichsbank thouht the same about holding forever..

Didn't work for them either.It's not like this hasn't been tried before.

Thu, 10/31/2013 - 13:07 | 4108965 NihilistZero
NihilistZero's picture

They aren't going to unwind.  Ever.  And in reality why should they.  It's digits in a computer, nothing more.  The money has already flowed into the banks so they can unload assets.  When the FED tapers the TBTF banks are going to be awash in liquidity to buy Treasuries, coincidentaly at just the time rates will be rising.

It's a 7th dimnension shell game that doesn't even mean anything...

Thu, 10/31/2013 - 10:59 | 4108562 XAU XAG
XAU XAG's picture

Non event

Thu, 10/31/2013 - 11:11 | 4108566 Dr. Engali
Dr. Engali's picture

 We are to the point of diminishing returns. Which is one reason why they will never taper. Another reason that they won't taper is because government expenses only increase from here to eternity, and no amount of taxes will cover them. Add that to the fact that we have killed any goodwill we have left in the world their only option is to print moar.

Thu, 10/31/2013 - 11:17 | 4108610 tvdog
tvdog's picture

When you consider that the real inflation rate is between 8 and 10 percent, yes, a lack of an increase in bond buying is a taper, since $85 billion last month was more money than $85 billion this month.

Thu, 10/31/2013 - 11:00 | 4108570 yogibear
yogibear's picture

Fed's balance sheet is like it's member banks. Mark to fantasy. 

It puts what it wants and leaves out the rest.

Thu, 10/31/2013 - 11:05 | 4108583 TwoHoot
TwoHoot's picture

The FED can print money but they can't print electricity.

Did I say electricity? Don't printers run on electricity?

Thu, 10/31/2013 - 11:06 | 4108589 lolmao500
lolmao500's picture

So what. It's not like the fed balance sheet numbers influences the bond market or the stock market or anything for that matter.

Welcome to the new normal.

Tapering at this point is shooting itself in the foot for nothing since nobody gives a fuck how big the FED balance sheet is. If they taper anyway, it's a planned crash.

Thu, 10/31/2013 - 11:09 | 4108596 Al Huxley
Al Huxley's picture

I love that 'although it didn't happen, a September 2013 taper is a useful reference'.  Yes, that's the spirit.  Do the same with the job numbers - 'although it didn't happen, a 500K print in full-time manufacturing jobs provides a useful reference'.  Now things don't even have to happen in bullshit fake statistics land to be 'useful references'.  These guys must be amazed at how far they can push the propoganda envelope, at the amount of asinine bullshit people will accept if it comes from guys in expensive suits.

Thu, 10/31/2013 - 15:05 | 4109332 Tinky
Tinky's picture

"...people will accept if it comes from guys in expensive suits."

Welcome to the Armani Report. Today's top story is about how the recovering economy has boosted espresso sales on the Upper West Side of Manhattan.

Thu, 10/31/2013 - 11:11 | 4108597 tvdog
tvdog's picture

The Minneapolis Star-Tribune states that, if interest rates rise, the Fed will lose money on its "investments," necessitating a taxpayer bailout of the Fed. Do not read this while eating:

http://www.startribune.com/business/229796541.html

To summarize, the Fed will lose money on the bonds it purchased with money it printed out of thin air and handed to its member banks at zero percent interest. Those banks will demand higher interest on the money that they loaned back to the Fed instead of lending to productive business, but the Fed will not have the money to pay the appropriate level of interest to the banks, so the taxpayers will need to make up the shortfall. All this must be done so that the Fed will retain the flexibility to deal with future crises.

The chutzpah is breathtaking.

Thu, 10/31/2013 - 11:15 | 4108607 Dr. Engali
Dr. Engali's picture

Well technically the fed won't lose money unless they sell. This is why the talk of unwinding their portfolio is nonsense. The very best that they can hope to do is to let it run off, and good luck with that in an environment like this.

Thu, 10/31/2013 - 12:09 | 4108774 tvdog
tvdog's picture

What gets my goat is that I seem to recall that prior to 2008, and for decades, the interest rate on excess reserves was zero. Now this interest on free money is not only to continue, but increase as interest rates increase globally. A "temporary" measure to "recapitalize" the banks has become an entitlement for the banksters, and they see fit to demand more as circumstances change.

Thu, 10/31/2013 - 12:45 | 4108891 Herd Redirectio...
Herd Redirection Committee's picture

Yes, thats because society knew there had to be incentive for banks to lend.  Now the banks make the rules, and they gave themselves incentive NOT to lend!

Thu, 10/31/2013 - 11:22 | 4108619 XAU XAG
XAU XAG's picture

The Fed NEVER losses money as they can just print and print

 

 

 

Value.........................is a differant story

Thu, 10/31/2013 - 11:25 | 4108630 Bearwagon
Bearwagon's picture

So they never lose currency
Money ... is a different story   ;-)

Thu, 10/31/2013 - 11:35 | 4108658 XAU XAG
XAU XAG's picture

@Bearwagon

 

Depends on your meaning of currency!

Thu, 10/31/2013 - 11:41 | 4108681 Bearwagon
Bearwagon's picture

Not exactly. I'd say it depends on their meaning of currency. Between the two of us: Money is that which has value ...  ;-)

Thu, 10/31/2013 - 12:11 | 4108779 XAU XAG
XAU XAG's picture

@Bearwagon

 

I tossed between saying your or thier...........guess I should have said both LOL

Thu, 10/31/2013 - 11:21 | 4108621 TrumpXVI
TrumpXVI's picture

So those charts are the "New Humor", right?

Thu, 10/31/2013 - 11:32 | 4108644 muleskinner
muleskinner's picture

As long as oil gets delivered everything will be under control and spending can continue.  Life will be great.

When oil supplies begin to decrease from the wellhead, the end of everything will occur.  Consumer Comfort Index will hit a new low.

Balance sheets won't matter.

 

Thu, 10/31/2013 - 11:48 | 4108704 QQQBall
QQQBall's picture

Quite a few older folks in Socal are selling their smaller apt projects and cashimg out. If the markets, including investment real estate pullback, people could just sell and pay taxes, which would lower the deficit. A lower deficit, in the ST, would entail less new UST issuance. Of course, govt would react by spending more and ignoring the extraordinary inflows - so the deficit would then be high in the out years. More money to give away, more money to blow shit up... 

 

Too much complacency and too much linear thinking. 

Thu, 10/31/2013 - 12:04 | 4108758 CHX
CHX's picture

Honestly, 4T, 5T, 10T 100T - doesn't make much difference IMHO, as the gloabal derivatives market is already in the Quadrilion range. They're just getting the presses warmed up, the real firing (or total collapse) is yet to come, and then a total collapse. Good day.

Thu, 10/31/2013 - 12:18 | 4108803 moneybots
moneybots's picture

Doubling Down

 

Greenspan doubled down on 1920's FED policy.  The Bernanke FED is doubling down on Greenspan's policy.  Without the benfit of hind sight, or even current sight, the impression is that Yellen will double down on Bernanke's policy.

The impression is that or much more will win.

Thu, 10/31/2013 - 12:27 | 4108833 RaceToTheBottom
RaceToTheBottom's picture

Not only not taper, but forced to increase QE to stop a bleeding economy.

170Billion/month should do it , for starters....

People might just start getting flustered when the chart starts going more vertical instead of tapering off.

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