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And The Biggest Beneficiary Of QE3 Is...

Tyler Durden's picture




 

Aside from the S&P 500 of course, which made billionaires out of millionaires (even if it failed to make billionaires into trillionaires this time around -  we will have to wait for QE4 or QE5 for that), some may wonder: who was the biggest beneficiary of QE3? It certainly wasn't the US middle class, which has seen its real wages decline in 6 of the past 7 months, and its disposable income is back at levels not seen since the mid-1990s. No, the biggest winner of QE3 is the same entity that we noted benefited the most from QE over the past 6 years, and which even the WSJ realized was the primary beneficiary of the trillions in cash created out of thin air by the Fed, when in late September Hilsenrath wrote "Fed Rate Policies Aid Foreign Banks"...  something we first said back in 2011 with "Exclusive: The Fed's $600 Billion Stealth Bailout Of Foreign Banks Continues At The Expense Of The Domestic Economy, Or Explaining Where All The QE2 Money Went."

So when it comes to the Fed's QE3 generosity to foreign banks, what was the real number?

Here is the answer.

The first chart below shows that since starting in December 2012, when QE3 was formally launched, and continuing through today, the Fed injected some $1.3 trillion reserves with banks, which has manifested as extra cash held by various banks operating in the US, both domestic, but most importantly, foreign.

 

So how does this increase in bank cash assets look like when broken down by banking group? The answer is shown below:

 

And the bottom line:

  • Small domestic banks, such as your mom and pop regional bank which is anything but Too Big To Fail: change in cash: zero.
  • Large domestic banks, think JPM's CIO group, i.e., its London Whale division which used precisely this "excess" Fed cash to try to corner the IG market and blow up in the process: call it just under $600 billion in cash as a result of QE3.
  • And the winner, with over $700 billion in extra cash added thanks to QE3, is: foreign (mostly insolvent European) banks.

So yes, European banks: feel free to send your thank you cards to the Fed: without its $1.3 trillion cash injection who knows how many of you would have passed the ECB's "no deflation to model" most recent Stress Test.

A word of warning: let's all hope that now, with some $1.5 trillion in Fed cash on foreign (most insolvent European) bank balance sheet, or just about half of all QE liquidity injections since the start of QE1, European banks are finally solvent. Or else, deflation, inflation, stagflation, hyperinflation, or what have you, the Fed will be storming right back in to bail out Europe's insolvent banks the US middle class all over again.

 

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Wed, 10/29/2014 - 15:19 | 5391031 ZH Snob
ZH Snob's picture

what a surprise. 

you foreign banks owe us.  wait a minute, not us.  them.

yea, you guys owe them lotsa mario euros!

Wed, 10/29/2014 - 15:27 | 5391058 Deathrips
Deathrips's picture

Tyler did you just delete a spammer? You did didnt you...

 

Awesome!

 

That saves me the time of verbally kicking their balls through the roof of their mouths.

 

RIPS

Wed, 10/29/2014 - 15:35 | 5391089 slaughterer
slaughterer's picture

QE 3 ends.  Market goes down .1%   Big fucking shit.  

Wed, 10/29/2014 - 15:43 | 5391104 hedgeless_horseman
hedgeless_horseman's picture

 

 

All they did was pause the OPEN market operations.

Mr Yellen may have let go of the bike, for a moment, but the training wheels are definitely still in place.

Wed, 10/29/2014 - 16:00 | 5391175 Divided States ...
Divided States of America's picture

Meant to post it on this topic, not in another topic.                   

Anyways, QE enslaves the poor, impoverishes the middle class, enriches the wealthy.

Risk off my ass. Ekm is right, this entire markets are a fuckin video game. The people running the show has unlimited lives and can keep restarting from the same point the next day. While the suckers who play the game have 1 life and has to PAY more to continue to play...only to lose everything.

 

Wed, 10/29/2014 - 17:16 | 5391402 Majestic12
Majestic12's picture

"Fed Rate Policies Aid Foreign Banks"

And "who" owns or is "behind" the "Foreign Banks"?

More distract, deflect, obfuscate, dilute, redirect....

You don't have ADHD....you are just reading "anything" these days....

These reptiles are experts of hiding the truth...but they thrive on the pain of others....from a hidden dimension...

Nobody believes it...and yet without this explanation...

....nothing makes sense.....

Wed, 10/29/2014 - 18:27 | 5391605 DeadFred
DeadFred's picture

A black swan is about to land, can't you hear the flapping of wings? They control things when things stay within the lines. Someone's pissed and things are about to change.

Thu, 10/30/2014 - 03:30 | 5392643 LostandFound
LostandFound's picture

When you read this thread in conjunction with the thread about the ECB stress tests and the fact that deflation is becoming inevitable in the Eurozone, driven by low oil and driven by sanctions and lack of consumption. This means we are dead on for a collapse anytime in the next 12 months and likely dead on for QE 4.

Germany and the US must be exchanging blows right now about monetary policy, sanctions, NSA spying and Gold lol, all this while putin offers his hand to Merkel to join the eastern revolution. I wouldnt want to be Merkel right now, either way she gets fucked, either zee germans will get rid, or zee bankers will get rid. Lose / Lose scenario but she may do go down in the histroy books! (hopefully for the right decision)

What a fucking shit show, circle jerked gang bang!

Fuck the financial markets!

Wed, 10/29/2014 - 15:45 | 5391131 ZoroAustrian
ZoroAustrian's picture

But they did get the ringinig endorsement of another surge in the USD and a kick in the nuts to gold.  Every fuckin day they win.  It must get boring for them.  For me its more infuriating than boring ...

Come on Putin, China, someone, shake something up.  Hubris must have its nemisis!

Wed, 10/29/2014 - 15:58 | 5391169 scaleindependent
scaleindependent's picture

Slaughterer,

 

Wait 6-9 months.

The market will either crash or QE will restart. I am willing to wager you that. 

Kinda dumb to make a quick judgement before the effects of QEpause go in effect.

Wed, 10/29/2014 - 21:07 | 5391992 sun tzu
sun tzu's picture

It won't take that long. Wait until after the elections

Wed, 10/29/2014 - 15:42 | 5391120 JamesH
JamesH's picture

bullshit. look at the chart the biggest winners were us large banks.

Wed, 10/29/2014 - 16:16 | 5391232 socalbeach
socalbeach's picture

correct if you look at % change in holdings.

Wed, 10/29/2014 - 15:20 | 5391037 Syrin
Syrin's picture

Anyone naive enough to believe the elections will change anything?

Wed, 10/29/2014 - 15:21 | 5391041 i_call_you_my_base
i_call_you_my_base's picture

For who? You? No.

Wed, 10/29/2014 - 15:25 | 5391054 saints51
saints51's picture

Next time out and about around a group of people, just watch them for about 2 minutes. Then ask yourself that question.

Wed, 10/29/2014 - 15:32 | 5391077 Creepy A. Cracker
Creepy A. Cracker's picture

Yes.  It has the potential to stop Dear Leader from appointing another leftist nut-job, anti-Constitution, Supreme Court member.  As we have seen, the Constitution and laws don't matter if judges (for life) ignore them.

Wed, 10/29/2014 - 16:13 | 5391219 TeamDepends
TeamDepends's picture

Amen! Surrender, throwing in the towel is always the easy choice. Was it over when the communists bombed Pearl Harbor?

Wed, 10/29/2014 - 21:29 | 5392036 Dave
Dave's picture

Communists? As I recall it was the Japanese.

Wed, 10/29/2014 - 21:44 | 5392085 Creepy A. Cracker
Creepy A. Cracker's picture

The Germans

(Reference John Belishi in Animal House.)

Wed, 10/29/2014 - 18:56 | 5391671 Pie rre
Pie rre's picture

You mean the same ass holes that voted for Citizens United.

Wed, 10/29/2014 - 15:31 | 5391080 Bell's 2 hearted
Bell's 2 hearted's picture

maybe ... on ESPN this morning something about a bill in congress on taking the NFL on re Redskins name change ... if Rs win ... bill probably disappears ...

Wed, 10/29/2014 - 15:33 | 5391081 SheepDog-One
SheepDog-One's picture

Elections will ensure the .001% benefit greatly....then we get to look forward to the next Clinton/Bush election....face it we're completely kornholed at this point.

Wed, 10/29/2014 - 15:49 | 5391140 TeamDepends
TeamDepends's picture

We have been wrestling hard with that question, and have some broken furniture to show for it. And you know what? The "it only encourages them" side lost. That's right, we'll be voting R down the line so junk away if it pleases you. Do we feel it will have any impact on the cartel/shadow gov.? Of course not! But it can have an impact LOCALLY. D.C. Is gone, finished, out of control.... However, if we can get rid of our POS DimCom Senator and Governor these will be victories, and not small ones. Minions of our Governor pulled some shit on Saturday that had they been Rs would have made national news. Sick of it! So if you sit this one out, and your local DimComs gain even more power and use it to pass legislation which allows them to part your clinched cheeks and breach your bunghole, well, don't come crying to us.

Wed, 10/29/2014 - 16:33 | 5391266 Atticus Finch
Atticus Finch's picture

You still actually believe that political parties have different agendas? You still actually believe that these parties define the Government?

Wed, 10/29/2014 - 17:26 | 5391438 TeamDepends
TeamDepends's picture

After the 2012 election, we stated right here on ZH that BOTH parties were "finished". We took some flak: How could the Dims be finished with Barry "winning" (ha) re-election? We argued that there should be at least three parties or maybe parties should be done away with. But that's not going to happen over the next six days, is it? Choosing an option that isn't available is childs play. The Ds are now presided over by Ayers/Alinsky communists who hide behind the "progressive" banner. Communism is the antithesis of a Constitutional Republic. Our Founding Fathers tried their level best to create a system which guaranteed our God-given, inalienable rights. Of course, the money-changers swooped right in like vultures. Today, they sit on the board of the Fed and are the "dual citizens" in Congress. So if you consider the Tea Partiers Rs, as they sure ain't Ds, then yes, there is a difference. A monumental difference.

Wed, 10/29/2014 - 16:28 | 5391261 Atticus Finch
Atticus Finch's picture

I've been anticipating the Hilary and Jeb farce since W. was in office.

Wed, 10/29/2014 - 15:21 | 5391038 NEOSERF
NEOSERF's picture

I'm no math expert but if there was $1.3T minus $600B for US banks and $700B for Foreign banks leaves $0 for Main St.....Next time can we simply send every household a tax refund of $20,000 which WOULD start spending which is appropriate now that according to stress tests, Banks are recapitalized and ready for the next recession.

Wed, 10/29/2014 - 15:23 | 5391046 LawsofPhysics
LawsofPhysics's picture

Unfortunately, that would lead to real hyperinflation.  You unwashed are sooo stupid like that.

-Ben Shalom.

Wed, 10/29/2014 - 15:32 | 5391079 Winston of Oceania
Winston of Oceania's picture

Hyperinflation is a POLITICAL event, not something a bankster would do to themselves. You will only have hyperinflation when a State tries to print away the debt entirely screwing the lender. The banksters have the politicians by the balls for now but when the politicians take to printing their own currency with which they have nothing to back you will have your hyperinflation.

Wed, 10/29/2014 - 15:29 | 5391069 Steroid
Steroid's picture

That is what the FED want!

By the time you get your "20K" it will worth only 5K and you will be screwd again by the big bank as they already have it in a still deflationary environment.

Wed, 10/29/2014 - 16:26 | 5391256 Atticus Finch
Atticus Finch's picture

Deflationary environment?? Been to the store lately??

Wed, 10/29/2014 - 15:22 | 5391044 NEOSERF
NEOSERF's picture

Does appear that Draghi is going to have to unleash at least $1T QE immediately or those foreign banks are going to be in a world of hurt.

Wed, 10/29/2014 - 15:42 | 5391123 Rainman
Rainman's picture

     ** Bingo **

Wed, 10/29/2014 - 15:23 | 5391045 angel_of_joy
angel_of_joy's picture

The ugly American is bailing out the EU not only militarily but also financialy. Soon enough we will have to pay for their welfare too... What good is that EU, again ?

Wed, 10/29/2014 - 15:24 | 5391048 LawsofPhysics
LawsofPhysics's picture

Guess we get to find out, but remind me, which one (U.S. or the E.Z.) has a trade deficit again?

Wed, 10/29/2014 - 15:35 | 5391091 seek
seek's picture

Fed gives $ to EU banks, EU banks buy EU bonds... We're already paying for their welfare. If that weren't needed... Greece would be solvent.

Wed, 10/29/2014 - 15:24 | 5391049 Otto Zitte
Otto Zitte's picture

designed to fail.

Wed, 10/29/2014 - 15:24 | 5391052 Bear
Bear's picture

I see a trend developing ... we give money to weak Europeans, they go belly up ... Russia takes them over, we default and China takes us over

Wed, 10/29/2014 - 15:29 | 5391067 Jethro
Jethro's picture

So....Vicky Nuland is the modern Cassandra?  So, that means the modern Priam is the Fed Gnome?  Kinky....

Wed, 10/29/2014 - 18:18 | 5391551 BrosephStiglitz
BrosephStiglitz's picture

You think the American central bankers are acting out of charity?  Nope! And here is why:

- European banks were heavily shepherded into so-called toxic assets prior to the subprime mortgage crisis.  This is true.  European banks who wanted a slice of the US market were told to invest in the local financial economy and then repatriate any profits from the investment.
- Ridiculously pathetic lending standards and greed meant that the accelerated liquidity from European banks could be quickly turned around and used to lend out more mortgages which were pooled, chopped up, and packaged into "low risk" derivatives.
- The poor lending standards which were politically motivated originated in the US.  Europe provided the fuel, but the US sparked the match that nearly crashed the entire developed world financial system.

That is a major, if not the prime, reason why the European banks are under capitalized, and since the US and Europe are bed partners, an unraveling banking system in Europe is bad for the US.

Edit: Plus, let's not forget that most of those big recipients are probably blockholders in the Fed.

Wed, 10/29/2014 - 15:26 | 5391062 Bell's 2 hearted
Bell's 2 hearted's picture

any chance Sage will take a GoPro with him to a party ... and, if so, will he put it on youtube?

Wed, 10/29/2014 - 18:14 | 5391558 BrosephStiglitz
BrosephStiglitz's picture

Could be post edited and set to "Habits (Stay High)" by Tove Lo.

Wed, 10/29/2014 - 15:26 | 5391064 OW My Balls
OW My Balls's picture

 "Small domestic banks, such as your mom and pop regional bank which is anything but Too Big To Fail"

 

WTF are those?   I think Bonnie & Clyde put those out of business way back when

Wed, 10/29/2014 - 15:37 | 5391101 seek
seek's picture

Credit unions.

Which, btw, have seen asset holdings and membership explode post 2008.

Wed, 10/29/2014 - 16:03 | 5391190 OW My Balls
OW My Balls's picture

It was a joke      I advised my mom [back in 2008] to transfer any of her 'bank account' type assets from a TBTF to a Credit Union back in 2008

Wed, 10/29/2014 - 15:37 | 5391105 Winston of Oceania
Winston of Oceania's picture

5 Star Bank NA

Just took out a HELOC to pay off the one at CHASE, a couple extra points on interest but at least us "hicks" own the bank...

btw just using the money to renovate the house next door that we purchased to lease out.

Wed, 10/29/2014 - 15:26 | 5391065 In.Sip.ient
In.Sip.ient's picture

I'm getting suspicious here.

 

Seems to me that ending QE is happening because someone

is benefiting in real terms ( which is fine) , but the "system"

isn't getting its cut, so they end QE to move the wealth to

where the PTBs want it.

 

Afterall, QE served to move Main St wealth to Wall St. do

cutting QE at this point means WS has somehow disproportionately

benefited at the expense of the "somebodies". So now they knock

the legs out from under the market.  And this seems to benefit

"cash" holders...  oh wait, there you are!!!

 

 

Wed, 10/29/2014 - 15:29 | 5391072 i_call_you_my_base
i_call_you_my_base's picture

"disproportionately benefitted"

There is no sense of fairness from anyone involved here.

Wed, 10/29/2014 - 15:33 | 5391087 In.Sip.ient
In.Sip.ient's picture

Just my meandering to the figure out the point. ;)

 

If you actually end QE, this benefits cash holders.

Why do that?  Well, with Greenspan saying QE is a bust,

you might want to up the credibility of cash, otherwise

Greenspans "buy gold" recommendation becomes a

self fulfilling prophecy.  Something we just

can't have here now can we???

 

 

 

 

Wed, 10/29/2014 - 16:21 | 5391241 Atticus Finch
Atticus Finch's picture

No one can assume that QE is going to end after the announcement of the end. The Fed was running the QE program long before the official announcement in March of 2009.

Wed, 10/29/2014 - 15:30 | 5391074 Creepy A. Cracker
Creepy A. Cracker's picture

Blurp

Wed, 10/29/2014 - 15:33 | 5391084 Doubleguns
Doubleguns's picture

Bank, banks, banks. What about citizens. Aren;t we on the list. /s

 

Sorry it was just so baltently obvious and in my face. 

Wed, 10/29/2014 - 15:35 | 5391090 Jahbulon
Jahbulon's picture

No crash?  What gives?  That is all I have heard now for five years.........

Wed, 10/29/2014 - 17:11 | 5391388 Clowns on Acid
Clowns on Acid's picture

STFU - try to get an edu_feckin'_macation by reading here you dumb fuck.. Another statement like that and you will not deserve any insights gleaned from ZH. 

Wed, 10/29/2014 - 15:47 | 5391135 Winston of Oceania
Winston of Oceania's picture

Why does anyone suppose the wheels haven't come off Europe yet? The fact that the Feds balance sheet has stopped expanding means that Europe will have to print now to carry them along. Expect the dollar to keep strengthening, the Euro to weaken and the Yen to play back and forth.

Wed, 10/29/2014 - 16:37 | 5391274 negative rates
negative rates's picture

Juggleing crystal balls now are we?

Wed, 10/29/2014 - 15:47 | 5391137 I Write Code
I Write Code's picture

So the fed buys US bonds (and other stuff?) from Euro banks, I don't figure the fed just handed out cash.  Of course the Euro banks might have sold the fed some trillion dollar coins for all we know.

Again, lack of fed transparency leaves us all guessing.

Wed, 10/29/2014 - 16:39 | 5391280 whoopsing
whoopsing's picture

I was thinking all the shit MBS we sold them..just a guess

Wed, 10/29/2014 - 15:50 | 5391144 Budd aka Sidewinder
Budd aka Sidewinder's picture

But But But....CNBC told Peter Schiff yesterday......

Wed, 10/29/2014 - 15:49 | 5391148 Seal
Seal's picture

So this is how "Belgium" is buying

Wed, 10/29/2014 - 16:01 | 5391182 walküre
walküre's picture

beat me to it

Wed, 10/29/2014 - 19:24 | 5391739 Beatscape
Beatscape's picture

Quid pro quo

Wed, 10/29/2014 - 15:59 | 5391177 walküre
walküre's picture

All we know is that $700 billion was sent to "foreign" banks. What we don't know is how much of that money was used to pay off US issued debts.

Surely that cash isn't just collecting dust at Monte dei Paschi. Oops, they're broke. Anyway, you know what I mean.

Wed, 10/29/2014 - 16:18 | 5391234 Atticus Finch
Atticus Finch's picture

So, more debt was created to pay off the current debt?

Wed, 10/29/2014 - 16:59 | 5391353 walküre
walküre's picture

more debt to service the exisiting debt and existing debt with higher yields was rolled over into new debt with lower yield

the principal of all debt has grown to the point where servicing that debt even at low low rates is a pain in the butt

Wed, 10/29/2014 - 16:22 | 5391245 trader1
trader1's picture

of course all the foreign banks holding that crummy, subprime MBS paper needed to be balanced up.  

otherwise, the whole system was going to implode, right?

Wed, 10/29/2014 - 16:41 | 5391290 toros
toros's picture

Everyone likes QE.

Wed, 10/29/2014 - 19:07 | 5391699 Tom Green Swedish
Tom Green Swedish's picture

Now that wee gave Europe a chance and they failed at it how about give Americans a chance.  Maybe start off with the local bank you know you can trust.  I am now taking all my money out of TBTF.  They have not only failed me but this so called government has as well.  Time's up.

 

Wed, 10/29/2014 - 20:00 | 5391757 Mediocritas
Mediocritas's picture

People often forget that there are two $USD systems out there, with the eurodollar system at times exceeding the size of the much more regulated domestic system. The Fed must pay attention to both as bank runs through the eurodollar system drain funds from the domestic system, thereby impacting the FX markets. The OP here provides a nice reminder.

The Fed must maintain liquidity of its member banks, of which many have significant eurodollar engagement. When foreign banks are building reserves faster than domestic banks, this suggests anticipation of defaults coming through the eurodollar system.

Also, for those wondering about what foreign banks are likely to be swapping onto the Fed's books in exchange for fresh reserves, QE2 provides a likely answer. During QE2 the Fed purchased TSYs but not MBSs (unlike QE1 & QE3 which were split between TSYs and MBSs) and, as ZH reported on, reserves were accumulated almost exclusively by foreign banks.

So foreign banks prefer to sell TSYs to build liquidity whereas domestic entities swap both TSYs and MBSs (which includes the GSEs Fannie, Freddie and Ginnie, that continue to bleed but few still talk about in their focus on Treasury).

These two asset classes are the only ones that matter when considering QE as they comprise ~99% of the Fed's $4.2T in security holdings.

Thu, 10/30/2014 - 00:03 | 5392430 theyjustcantstop
theyjustcantstop's picture

i thought the fed. was forced to admit they sent 2 trillion to ebc before qe1 started, to buy back toxic mbs's, that were sold to them.

nobodys going to know how many trillions of tax-dollars were thrown around from 10-08 thru 12-09.

 

 

 

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