The Biggest Difference Between QE3 And QE2

Tyler Durden's picture

Back in 2011, in an exclusive analysis, Zero Hedge showed how virtually all the reserves created as a result of QE2 ended up as cash on the balance sheets of foreign (mostly European) banks operating in the US. Some suggested that this was due to a change in FDIC rules which was being arbed by foreign banks which were able to engage in a mini carry trade affecting the Fed's excess reserves. We disagreed, and suggested that this was nothing short of yet another way in which foreign banks abused the Fed's "Bernanke Put" to bail themselves out at a time when the Eurozone and its currency seemed like they would implode any second.

QE2 came and went, and was replaced by QE3. And, having lasted nearly a year now, it has allowed us to observe the main way in which the Fed's open-ended QE3 has so far differed from the QE2 of 2011.

Recall that while the Fed's Quantiative Easing programs are largely determined by what securities the Fed monetizes: i.e. the sources of funds, what is always left unspoken is where the Fed's created reserves end up, or the "uses" of funds, or rather, reserves. Luckily, as the chart below shows and as tracked by the Fed's H.8 statement, there is a perfect correlation, and causation, between the Fed's newly created reserves parked at banks, and the corresponding change in cash held on the books of either domestic (large and small) and foreign commercial banks operating in the US.


What may not be quite visible in the chart above is that during QE 2, virtually all the newly created cash ended up at foreign banks. This is shown far more clearly in the chart below showing the change in cash balances at large domestic commercial banks and foreign banks between the start and end of QE 2.


So while the Fed was explicitly pumping the deposit base of foreign banks in 2011 - and thanks to JPM and the entire deposit collateral pathway we now know that this cash was used to satisfy collateral requirements needed when purchasing risk assets, even if the banks never explicitly used the Fed's cash to buy up risk - what has it been doing so far in 2013? The answer is shown below.


Surprisingly - if only to all those who claimed our assertion that the Fed was bailing out Europe's banks was bunk due to "regulatory arbitrage" - entirely unlike during QE 2, this time around, virtually every dollar newly created by the Fed has landed on an equal basis at both large domestic commercial banks, and foreign banks operating in the US. But... but... whatever happened to the regulatory arbitrage of QE2?

To those still confused, here is the best visualization of the cash change in domestic vs foreign banks under the two QE regimes:


Indeed - a pretty clear summary of what the Fed's deisgnated bailout audiences was under QE 2 (European banks) and QE 3 (everyone on an equal, pro rata basis).

The above, far more importantly than what the Fed is monetizing in order to build up its reserves, gives us a clear snapshot of the other part of the equation - where the Fed's reserves end up.


All of this should perhaps once again spark the debate over just why has the Fed parked a record $1.3 trillion in cash not with US-based banks, but foreign ones, and just for whose benefit - since by now it is quite clear that QE is solely for the benefit of the 0.1% of the population and, of course, the banks - was QE designed.

Because it is one thing to bail out the rich, at least they are America's rich. But when more than half of the proceeds of QE to date... 

...have ended up at foreign banks, perhaps at least a theatrical congressional hearing is in order?

Source: H.8

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knukles's picture

Because of counter-party risk.
All them interest rate swaps, credit default swaps, foreign exchange transactions, due froms and to, you name it...
There is really no such thing from a global systematic risk standpoint when one gets into the large banks, as domestic and foreign.

It's one big Gordian Knot as they exist now.

One of 'em goes, they all will be impacted.

To wit:  Lehman.  A second tier non-depository investment bank/bond dealer gets slammed and look what the repercussions were... global, bigger than just big, took the financial system to the very edge.
That's why the overwhelming liquidity supplied to the markets, globally.

Gee, but for the good olde days of a bazillion small banks.
But then again, there'd only be small campaign contributions, small cash envelopes and small transfers of funds to offshore havens.

Bay of Pigs's picture

Huh? You mean they don't want a shitpile like Deutsche Bank blowing up in their face?

ZerOhead's picture

"...have ended up at foreign banks, perhaps at least a theatrical congressional hearing is in order?"

First roll out the Yellen... next release the Grayson...

UP Forester's picture

How about a "cyber-war test" in London the same week as Grid Ex II, just to shake things up?

The Alarmist's picture

Payback for taking the losses for all those shitty CDOs and CLOs back in 2008?

Dear Infinity's picture

What's a trillion between friends?

max2205's picture

Don't be long Yankee bonds when the taper man knocks on the door

Zer0head's picture

not to worry

the taper man can no longer knock

it's a bitch when someone not only chops off your penis but your hands as well.

Ranger4564's picture

CHANNEL STUFFING, at it's very best. Why try something new when the old still works quite well? This is the easiest way, cheapest maybe even, to get the foreigners to continue to honor the ka $ ching. If the FED had not "rescued" the foreign *cough* oligarchic circle jerk *cough* with $'s, then the $ might have been toilet $ paper. This heist, foisted on both the people of the US and the foreign *cough* banks *cough* basically kept us in debt but temporarily delayed the run on the currency.

I think it's worse to have given it all away than to have lost it all... but as I'm sure these scumsucking douchebags will say as way of explanation... if you lost it, you don't have another hand to play except start over and rebuild, but if you gave it away, you might be able to resurrect the economy to recoup the "gift", i.e. take it back.

Of course, we should all know by now that there is no recovery and no intention to recover the "gift" so the country was sold into debt, same as parents in godforsaken nations abuse their children by marrying them off for ka ching. The FED owns us, and now, thanks to the loans, owns the foreigners, and all with no assets / collateral / right to do this kind of fucking shit. Same kind of evil, both should rot in hell where I will meet them to mete out their eternal punishment.

I object. Buy gold and silver, end this evil nightmare. OK, enough already, for god's sake, end the fucking bickering and buy the gold and silver, end this damn nightmare. Ultimately, if the nay sayers are right, what does it matter, the economy continues to be manipulated and all "asslessets" continue to climb, you still have your asslessets just denominated in gold and silver. If the yay sayers are right, the world is indeed collapsing and gold and silver will save your ass, ka $ ching will bury your ass.

Yay. If it has not yet occurred to the nay sayers, gold and silver are a protest move, to diminish the flexibility of the oligarchs to manipulate our wealth. If we all agreed to use gold and silver, we'd be in control, they'd be holding a bunch of assless ka $ toilet $ ching $ paper. Get with the program, and stop allowing the divide and conquer strategy to work your wife and kids. I mean it.

Oldwood's picture

Can it not also be that more and more people are removing themselves from the ranks of the employed as a protest to this economic system. I mean people have been doing it since its inception but now, with seemingly pending doom and all, I think more people are stepping back and finding ways to get by with less. Partly in protest and partly in self preservation. If nothing else, if we simply refuse to buy stocks and bonds and refuse to borrow money, it would go a long way towards ending this tyranny. But of course, this is why they are winning as we refuse to accept austerity as something healthy like exercise and dieting, insisting on never missing a "meal" of returns on investment. It is this thirst for easy money that keeps those enabling all of this at the top of the pyramid. We were never supposed to be able to live on the interest from our savings. We were supposed to save for our retirement and bad times, but due to government policies creating inflation, it has become SOP to "invest" for the specific purpose of retaining value, but as all things morph, it is now about profit. Greed is the end of all things, and not just at the top. It is a virus that easily spreads from person to person and countries to countries. We are in an epidemic of greed with symptoms of full on denial.

markmotive's picture

Argue about the rationality. It doesn't matter.

What matters is that the 99% hate the fat cat bankers. These people are revolting because of they are destitute and they could care less about counterparty risk.

Russell Brand of all people has become the spokesman for the 99%

smlbizman's picture

ranger......i agree, but ur post about buying gold and silver meme, is failing us.... to a degree in part, imho, for this reason......we are not saying...." put ur savings in gold and silver and not a fucking broke ass bank...use the bank for checking and transactions as needed, but keep ur (labor) savings in the shiny...we also need to discuss what is the best ways to liquidate these savings if  needed....we are all guilty off this. we need to adjust our the metals to store ur savings....

and as a parallel point...i dont buy bitcoins because of some realities, but mostly my lack of abilility to understand the transaction part...i will and have bet a 75-1 horse that couldnt lose, and he won by 15...and i was down to my last eight dollars when i bet him, so risk isnt the issue...its the difficulty i find in the people that are soooo ignorant to the whys of metals, will continue to stay ignorant because of the whys, and the same manor that as of yet, anybody has been able  to explain the simplicites of bitcoins to my ignorant i  will keep my labor in metals, but i also would love to bet on bitcoins at 75-1, i just dont know where the window is at...  

Ranger4564's picture


Although I don't get into all of the hype in the articles / interviews, I read the KingWorldNews blog fairly regularly. if the rss doesn't work to display the written text, go to the blog linked on the left. Just skim through some recent articles. I am not saying the interviewee's are right, just that there's a perspective there.

I shifted all of my savings into gold and silver once I realized the bankers / governments were manipulating currencies and economies that I saw a greater risk of losing my savings through their actions than the loss in value of gold and silver. I am now at a little loss even with my dollar averaging because I made the decision to buy more when Silver was at $49. I don't regret it, but the magnitude of banker / government fraud was less clear to me then than it is now. However, blind or not, I don't think I would have stayed in stocks or held cash even if I realized the fraudsters would raise market valuation, because I don't want to support their actions and be guilty of the destruction they're causing, and even if you overlook that, there was no clear indication of when the market would be summarily plummeted. And that's also why I mostly stay out of it still.

So I asked myself this basically... if governments can't be trusted, why buy their bonds, if corporations are complicit and devastating civilizations across the globe, why buy their shares / bonds, if banks are fraudulent and engaging in outright theft, why keep my savings in their warehouses, if currencies are what enable these entities their power, why use their currency. Keep asking the questions, and you have less and less to store your savings in. I refuse to buy other commodities because I do not want to be responsible for making the price of food or fuel too high, resulting in the starvation of people around the world. I don't want to invest in real estate because the bankers / governments will use eminent domain / increased taxation / inflation / bankruptcy / outright corruption to evict you from your property should things go to the extreme I envision they might. If Greece is forced to sell physical assets, if the US is selling physical assets, then why would people believe their property is safeguarded?

I believe the objective of the oligarchs is to extract so much wealth that it shifts the entire global economy away from individual wealth to a 2 tier system, rich and poor, with very few rich. I call it the return of feudalism. We are being robbed in every way possible. Real estate values will be manipulated until all wealth is in the hands of the oligarchs.

So given the options, gold and silver seems the best place to park my savings. I am aware gold and silver mining is harmful to the people who mine and the environment in the processing, plus the energy used to extract / refine it, but it was a compromise I chose to make for greater good.

Gold and Silver is like the other protest no one attended... Occupy. If people don't participate in the protest, then those who do get arrested. So if people don't realize the arguments I'm making above or are otherwise complicit with the fraud, then those who do bother to protest are at greater risk for loss.

I really don't think people will tolerate the dramatic decline that I see still to come, and I think people will ultimately drum up some courage to oppose the bankers / governments, but I have been screaming my message for many years now... the longer you wait to stop the train, the harder it will be to stop the train... momentum... it's easy to steal all of the pensioners money in Detroit or LA or Poland when it's done one locale at a time, but it's harder to steal pension funds from everyone. If people who are being robbed don't receive support from people who have not yet been robbed, moral and physical support in protests, then society will be destroyed, and if it can be, it maybe should be. Maybe this version of civilization just isn't robust enough to preserve human dignity...

It depends on what threshold people set for suffering. I can't understand human greed or cowardice actually, not to the extent people are exhibiting it. I see these bankers destroying the lives of people all over the world and of future generations, and the citizenry seem to have no concern, not even for their kids and grand kids. They seem to only worry about whether they can adjust to the 10% of their pensions they'll be allowed to collect.  Like there is no other option. Hello, stop the bankers.  It doesn't seem to be crossing anyone's mind to go arrest the bankers, stop supporting their system, to stop allowing the theft, to restore a semblance of normalcy, and ultimately, with the fraudsters out of the way, maybe even improve conditions.

But, I suppose the people know the truth behind the economy, profit and surplus is coming at the expense of someone else, and it's better to have a henchman go collect the profit and have it delivered to you than to go try to collect it yourself. So people realize perhaps, they've been engaged in a fraud, and they're just receiving their punishment now. I see a lot of parallel between Madoff and average citizenry.  Or maybe people fear further losses if they do something, say something, see something. Maybe people just don't want to know the world is falling apart. I know a lot of people who refuse to acknowledge reality, from rapes / killings to Chernobyl / Fukushima to Coke / water rights to Monsanto / GMO, people refuse to acknowledge the destruction, because they're cowards.

I figure most of these people will be dead when the transition occurs, so whether gold and silver ultimately have a use is debatable. For me, gold and silver is a withdrawal from the system. I figure gold and silver offers the opportunity to buy some land and some food should there be a need when the dust settles. I don't know if gold and silver will be accepted or used during the collapse, I don't know the collapse will take very long. The Just In Time system was implemented to ensure the control of the populace pre-collapse, and the quick collapse of the civilization when the time was right.

All I can say to people is, have courage, do something to save humanity. I don't believe this politico-economic system is the one to preserve, but I'm not trying to ensure that, I'm trying to prevent genocide by the intentional devastation of the citizenry. Ultimately, we need better systems, it's called progress, and as we learn more, as we see the mistakes / failings, we change our mode of operation. We don't need money, but we sure as hell want to keep what money we do have out of the hands of those who believe money is power. I don't want to empower the thieves.

superflex's picture


I might speculate $1000 in BTC if the system wasn't so difficult to understand and manage.  

Thta's why I like my LCS.  I walk in with cash and walk out with stacks.

Cant say the same for the cryptocurrencies.

smlbizman's picture

ranger, i also 3 yrs ago and over a 2yr period closed our self directed iras....i am all in on hard assets...paid for homes and rentals and metals...the problem is, if you want or need to liquidate ur metals and raise substantial amount of cash quickly.....if you need 50k quick it gets to be an issue...and that is saying without taking a beating on price, paper work, if there are ways to do this without the foreseen problems i and others may like to know.....any thoughts?

Ranger4564's picture

Unfortunately, I have no secret insights. Only thing I can think of is to keep a certain amount of cash or holdings in assets that you can transfer quickly, if you need that kind of liquidity. I keep a minimum in cash that I know is at risk... and I keep the rest in gold and silver, which I realize is also at risk. How much cash I keep depends on what I plan to do in the next few months. You may want to see if holding some of your money in foreign currencies is advisable. A friend of mine has 50K in cash, recognizing he's lost 10% in the past 5-10 years. But he needs that flexibility. I think the general advice is to not put into metals any cash you need in the short term, because you don't know which way the market will go. I've reconciled that if I need cash in an emergency, the loss in metal price is something I'll just have to absorb.

Maybe someone else can chime in and suggest what you might want to hold your money in when you want quick access. Right now, I don't feel any asset class is secure, except that with metals, ideally you could hold onto them until they are more useful.

I wish I had more insights... best of luck. Let us know if you think of anything.

Ranger4564's picture

For the most part what you say is true.

These thoughts are still being analyzed in my brain so I could be wrong in what I write here, but I wanted to share while considering the merit of this line of thinking. There's an irony that I've been thinking about. There are a lot of people who argue for the republic form of governance, but at the same time argue for a free market system. The irony or contradiction or illogic is, a republic is a top down model, where a few know it alls dictate to the ignorant masses, but at the same time, the masses are supposed to be intelligent enough to engage in commerce / consumerism, and any top down gestures are seen as not only interference but market rigging. I just don't think a market contrived through an organization such as the republic can ever really be free or unmitigated, so there is an inherent catch 22. I actually think the world is presently heading more and more into a supra-national form of republic, i.e. feudalism, and the people who are in control view us the same way some of us view those deemed unprepared to judge for themselves. Was the republic ever a fair or just system, or was it always tacitly or knowingly an exploitative system of advantage? I'd say it was the latter. And so the same phenomenon is blown up to multinational scale, and the exploitation / advantage is even more severe.

I don't believe in the republic or the entirely free market... mediated society / society in which members negotiate with each other already distort a free market. I don't entirely believe in a top down controlled market either. I think a combination of market interaction and policy by the citizenry would work... some regulations, some agenda, some free interaction. I believe a genuine democratic system is the only viable long term solution and I also believe the problem of ignorant masses is not ignorance but social engineering / conditioning, so the solution is not to create a form of governance that disenfranchises a large portion of the population, it's to erase their ignorance by introducing the information in manageable chunks so ultimately, their children will be able to rule themselves. That allows me to logically argue against the oligarchs as being ruthless, instead of illogically arguing that they're ruthless in not allowing me to be ruthless. I know, there's no significant illogic there. Just the sentiment doesn't wash.

Anyway, most times when I think about the things people defend and argue, I find there to be tremendous logic gaps. Those logic gaps tell me the world is controlled / manipulated / engineered, not that we're just morons.

I bring all of this up because a portion of your explanation does not really consider this or its consequence to society.

max2205's picture

Shocked....shocked that ZH had to be the one to publish this...still shocked

smlbizman's picture

let me fix that for you if i may.....shocked that zerohedge is the only one to publish this.

now back to our regular programming.

kaiserhoff's picture


  Diversification, as in more opportunities for rehypothication, bail ins and grand theft Corzine.

  As soon as some one sneezes, the whole fucking world gets the plague.

  We used to call that mutually assured destruction, but it's different this time, right?

knukles's picture


Now it's called too big to fail.
Such a politically correct statist (thievery) term of endearment to make the otherwise unacceptable seem ever so necessary.

kaiserhoff's picture

Nothing is either good nor bad, but spin meistering makes it so.

                      With apologies to the Seventeenth Earl of Oxford.

OldE_Ant's picture

I'm thinking since British/US banking interests have led whole other regions into this fiasco AND caused massive consolidation in virtually every business space (what space has more smaller businesses, vs. less larger ones - the internet I honestly can't think of one.  haha).  The gordion knot was twisted and tied throughout the entire 20th century.

The problem is like an anaconda their knot has started to squeeze the life out of everything.  TBTF is one of the highest piles of crap ever created and guess what after all the jawboning about it, everything is even bigger now.  The coils of the anaconda winding more and squeezing tighter.

This is precisely why the FED has no choice but to keep the QEroin flowing.  Ultimately there will be an event that will toss the system into chaos, and guess what doubling QE won't do shit.  It will require governments to interviene and 'bail out' whomever.  Numbers will be between 1-5T.

ZH11's picture

Let's 'solve' the Gordian knot just like Alexander then.

By putting a great big fucking sword through it!



disabledvet's picture

see other comment above/below. I agree with this....Great Depression on a massive scale...only in Europe instead of the USA. (we had massive gold reserves then but the dollar wasn't a reserve currency...the Pound still was top dog.) what they're doing can be construed as yet another albeit "backdoor" way to provide massive amounts of liquidity to Wall Street and the banks. a kind of "monetary trade deficit effect" where all that bailout money goes straight from Washington to Europe and then right to New York City and "he Twitter IPO." not that I'm saying "buy Twitter here" just saying that kid is now a billionaire too. no word yet on nuptials of course.

edwardo1's picture

It's true that they are all connected in a giant daisy chain, but what is really at the heart of the matter is that all these instruments, regardless of their provenance, ultimately rest on top of a dollar based system. And it is that system, the dollar based International Monetary and Financial System, that has the sword of Damocles precariously perched above its neck. This is why The Fed is extending largess to foreign banks, because, ultimatley, they are not foreign.

0b1knob's picture

why does the Fed...continue to bail out non-American banks?

why is the dollar still the reserve currency of the world?

Kirk2NCC1701's picture

It wouldn't be to create artificial demand for the Dollar, is it?
I mean, with the natural demand for USDs and USTs just growing to new highs and all.

disabledvet's picture

appears to be to create a "rampa-palooza" effect in equities. I know if they do that press conference thingy with the Chief Fed dude that's the one and only question I would have: "is the whole idea to have Wall Street go hog wild and that's the solution?"(sound of crickets chirping.)

Urban Redneck's picture

What would be interesting is to see the other side of the transaction, what type of crap paper is the fed trading for, and what terms are they offering vs what a bank could get on the open market-

LetThemEatRand's picture

Anyone still wonder who owns and controls the Fed?  Or why the Fed refuses to be audited?  

AlaricBalth's picture

This clip never gets old.

Bernie Sanders: Mr Bernanke. Could you please tell us to whom you lent 2.2 Trillion dollars of taxpayers money?

Ben Bernanke: No!!!

putaipan's picture

mmmm. the vatican? the crown? i dunno, who?

Kirk2NCC1701's picture

Self-interest. To keep them from dumping the USD, and thus keep the Ponzi going.

"There is no honor among thieves", so they must be bribed and propped up.

LetThemEatRand's picture

If the Fed didn't give them dollars, they would be required to obtain them by other means.  That would drive up the dollar, not vice-versa.  It would also crash the stock market and other risk assets.  This is an intentional transfer of wealth from American taxpayers to foreign banks.  The dollar is being devalued as a result.

Ranger4564's picture

It's a bit more complicated / sophisticated I think.

The money being lent is being put on our ledger as debt, and also on the foreign banks as debt. FED wins.

The money is being handed out as $ so the $ retains its mystique and parlay as a global currency.

The devaluation you speak of is intentionally slowed down... boiling pot, not raging inferno. The frogs have to be kept in the pot for the soup to be ready.

The wealth transfer is occurring, but not to foreign banks in the way you say... it's wealth like when you borrow money to buy a car. It's money being lent to pay for loans and obligations already imposed on the foreigners by the oligarchic circle... IMF / BIS / WB, the necromongers. They collapsed these countries economies, and are lending them more so they can drown them now.

But correctly, both the citizens of the US and Europe are being pillaged.

EscapeKey's picture

The banks in question are surely more like supra-national, rather than foreign.

nmewn's picture

If the Fed doesn't conjure up cash from thin air, who will buy US government bonds? ;-)

LetThemEatRand's picture

The Fed is buying the bonds.  Transfering cash conjured from thin air (which is future taxpayer debt) to foreign banks to buy bonds is merely creating a middle man and making it a little less obvious.

OwnSilverPlayMusic's picture

see Hayek "The Road to Serfdom" for more info.

LetThemEatRand's picture

And before Hayek figured it out and blamed it on "socialism," there was actual serfdom orchestrated by the guys who always take over when there is a power vacuum.  It is not a binary equation.  It is possible to have government elected by the little guy, doing things for the little guy, and not have bare knuckled capitalism as the alternative.  Hayek recognized this in theory, but his desired economic model ignored it.  Hayek had a lot of things right, but the messy world of reality does not lend itself to simple solutions.

Ranger4564's picture

I could not agree more. Very well said indeed.

1000 +'s

knukles's picture

Not only making it a "little less obvious" but the Fed by Law Cannot Directly Monetize Treasury Securities... so that's where the open market operations come from...
With Goldie and JP taking a commish.

Waddascam, waddascam

LetThemEatRand's picture

The ultimate loophole.  And of course our elected politicians won't do anything about it because they are bought and paid for (both Teams) by these same interests.  Paging John Corzine.  John, you have a call on Line 3.  It's your Get Out of Jail Free Card calling.

seek's picture

This just underscores that in 2008 the global banking system collapsed, and the Fed "rescued" everyone, not just the US banks, in subsequent rounds of QE.

When it happens again I don't think a rescue will be possible, and the chain reaction of imploding fiat will be glorious, even if the consequences of it are ugly.

Bay of Pigs's picture

As I recall it was over $11T too, not just the $700B thrown at the TARP.

kliguy38's picture

correctamundo.......the 700B was just pocket change to give the illusion there was a "solution" and to put some bonus money in the banker's pockets...........the real money was the Dirty Digital Benny

Goldilocks's picture

Beck - It's All In Your Mind, music video (3:19)