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The Fed's Balance At The End Of 2013: $4 Trillion

Tyler Durden's picture


What happens next:

  • Imminently, the Fed's Open Markets Operations desk will commence buying $40 billion in MBS per month, or about $10 billion each week. Concurrently, the Fed which is continuing Operation Twist, will still purchase $45 billion in "longer-term" Treasurys, sterilized by the $45 billion or so in 1-3 years Bonds it will sell until the end of the year at which point it runs out of short-term paper to sell.

End result: every month through the end of 2012, the Fed's balance sheet expands by $40 billion in MBS.

  • Beginning January 1, 2013 the Fed will continue monetizing $40 billion in MBS each month, and will continue Operation Twist, however it will adjust the program so that it continues to increase its long-term holdings at $85 billion per month, without sterilization as it will no longer have short-term bonds to sell. It will also need to extend its ZIRP language "through the end of 2016" so all bonds 1-3 years are essentially risk free, as they are now, in effect eliminating the need to sell them.

End result: every month in 2013 the Fed will increase its balance sheet by $85 billion, consisting of $40 billion in MBS, and $45 billion in 10-30 year Treasurys, or the natural monthly supply of longer-dated issuance. The Fed will therefore monetize roughly half of the US budget deficit in 2013.

Putting it all together, the Fed's balance sheet will increase from just over $2.8 trillion currently, to $4 trillion on December 25, 2013. A total increase of $1.17 trillion.

This is what the Fed's balance sheet will looks like:


Another way of visualizing this is how many assets as a percentage of US GDP the Fed will hold on its books. Currently, this number is 18%. By the end of 2013, the Fed's historical flow operations will be accountable for 24% of US GDP.

Why is this important? Simple: when the time comes for the Fed to unwind its balance sheet, if ever, the reverse Flow process will be responsible for deducting at least 24% of US GDP at the time when said tightening happens. If ever.

What is scariest, is that as of this moment, all of this is priced in. Any incremental gains in the stock market will have to come from additional easing over and above what Bernanke just announced.

And finally: Fed's DV01 at December 31, 2013: ~$4 billion


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Thu, 09/13/2012 - 17:42 | 2792183 ZeroAvatar
ZeroAvatar's picture

If I've been awake since 2005, why does it all seem like such a bad dream?

Thu, 09/13/2012 - 17:47 | 2792216 Future Tense
Future Tense's picture

The following discussion provides a good look at why stocks and bonds should fundamentally go down with endless QE and what it means for gold:

Thu, 09/13/2012 - 17:53 | 2792240 negative rates
negative rates's picture

In this case it means all kinds o tools for all kinds o fools.

Thu, 09/13/2012 - 18:15 | 2792341 NewThor
NewThor's picture

and the dragon plays musical chairs with the beast.


All this too must pass.

Energy is never really destroyed.

The universe is constant change.

Roche limits everywhere.

God bless everyone.

Great blueprint, anyone?

Thu, 09/13/2012 - 18:22 | 2792367 Thomas
Thomas's picture

Recall how dreadful the $30B Bear Stearns backstop felt? Seems like such a quaint concept by comparison. If this experiment that the Fed is embarking on fails (in the manner that history would predict), Bernanke will go down in history as...wait for it...dumber and more reckless than Greenspan. He should shoot himself now.

Thu, 09/13/2012 - 18:40 | 2792432 TheSilverJournal
TheSilverJournal's picture

The Fed is now on the "unlimited" plan. A $4T balance sheet reached in 2013 is the optimistic scenario.

Thu, 09/13/2012 - 18:45 | 2792449 Sylvia Plath
Sylvia Plath's picture

Isn't this what Japan has been wondering about for the last 10 years?

Thu, 09/13/2012 - 18:58 | 2792515 common_sense
common_sense's picture

Bernanke = Suicide

Thu, 09/13/2012 - 19:28 | 2792637 smlbizman
smlbizman's picture

look at the bright side...there will be no qe4..yeah!!!

Thu, 09/13/2012 - 20:03 | 2792766 cranky-old-geezer
cranky-old-geezer's picture



Yep, because open-ended QE3 will finish destroying the dollar.

This is it folks.  The death of the dollar. 

Watch the dollars in your pocket (and paycheck) lose value rapidly now, probably 20% - 25% per year, maybe more.

And yes prices on everything in demand will rise 20% - 25% per year, maybe more.

Why does Tyler not mention this?   Why does ZH avoid the currency dabasement effect of QE?


Thu, 09/13/2012 - 20:19 | 2792825 FEDbuster
FEDbuster's picture

"You NEVER go full RETARD!"

Thu, 09/13/2012 - 20:44 | 2792904 kaiserhoff
kaiserhoff's picture

Excellent.  I've run some numbers on this, but never expressed it this well.

There is no end game.  There is no beginning of the end.  There is only "thelma and louise."

Thu, 09/13/2012 - 21:15 | 2793000 Paul Bogdanich
Paul Bogdanich's picture

Actually with a book entry the Fed can just wipe out a portion of the Federal Debt equivalent to the amount of Treasuries they hold so there will never be an "unwinding" as the author suggests.  In essence all Bernanke is doing is funding the Federal Deficit so the politicians can continue to play Emperor and fly their drones and killl people like they own the world and everything in it without any budgetary consequences save inflation which is going to be hard to generate so long as nobody has a job.   

Thu, 09/13/2012 - 23:56 | 2793467 Michael
Fri, 09/14/2012 - 00:03 | 2793484 Oh regional Indian
Oh regional Indian's picture


Greetings, Allow me to create a little allegorical/analogical scenario: This could be the English Premier League (Man U  Vs. Liveherpool)/NFL (CowherBoys Vs. WhyKings)/Sharks Vs. Wings, Sox Vs. Yanks, India Vs. Pakistasn….. take your pick. Basically a bunch of overpaid thugs (broad brush) playing a rigged game in front of Joe/Mary 12 pack and their extended brood. The thugs on-field know the game is fixed (it always is, in case you naively thought otherwise). Meanwhile the crowd bays (for a goal, a hit, blood….anything) All soaked in the “great” history of their team (pop and mom and gramps were dyed in the wool fans too), the seeming halo-istic un-touchability by “normal” of their “heroes (sic sic sick)” and soaked of course to their gills in whichever brand of alcohol (mostly beer, that curse upon humanity, sorry if you are a conniscrewer of fine ales, bud/dud/ice/hein, all causes of decline/decline/decline). So they chant their songs (so much power in the word), wearing their club logo (Logo, logos…. ever stopped to think about that one???), with all the power of the symbol. Meanwhile, time is up (let us take the Man/Liver game here). No final whistle. Scores tied. The thugs know the deal, the owners know the deal (AIG, too funny), the financiers know the deal. All about the merchandise and the Gate. Screw the crowd. The baying gets louder.It’s getting restive, who was injured that badly? Injury times rolls on. The thugs are indefatigable, they run and pass and do their thing. Still no whistle. The baying grows louder. The referee smirks, looks at his clock and says “Play On”. Did FIFA change the rules on the fly? Maybe, only the ref knows. Anything is possible. Can the game go on? Maybe, the thugs are stoked on their millions and the adulation and will run and run till they die (they are of course as expendable as the proletariat in the stands). And yet the game goes on. Beer is running out, crowd is getting restive. Screaming now, railing against the railing, wanting to get at the Blues, the reds the pinks on the other side, forget the game. Split a head, kick some (ones) balls. It’s all about the gratification of innate, TV/gaming induced violence anyways. Now they couldn’t care less, game is tied and still going on. Suddenly a railing gives. Are the thugs safe? Of course. Owners in their box with high security are safe too. The financiers could not care less about anyone or anything, least of all the Beautiful game, plus they set up this opium (now crack) for the unwashed anyways. So the reds and the blues start going at each other, ready to kill, not knowing for whom or what or why, just dazed and crazed and programmed to kill (literally or figuratively) , drink, F##k, repeat. Now the unrest spreads, but only amongst the crowds, the thugs play on, the ref smirks some more…. How do you think this will end and who is really calling the shots? The parallels at every fractal level, including our (intelligentsia’s) sins of omission, commission or participation, vicarious or otherwise should be clear to see and give you a pause next time you peer in your one too many mirrors…. ori

Fri, 09/14/2012 - 01:08 | 2793575 Michael
Michael's picture

The internet Hive mind collective has changed the rules of the game.

The Bill O'Reilly's and David Gergen's of the Bohemian Club world are in a complete state of panic and melt down. I just love watching them going off the rails having a hissy fit. It's going to be very hard for them to keep the 9/11 bodies buried next year.

Alex Jones asks David Gergen about Bohemian Grove Rituals

Dark Secrets inside Bohemian Grove ( Alex Jones )

It's not over yet ORI.

Fri, 09/14/2012 - 03:13 | 2793679 Michael
Michael's picture

Tony Blair Appointed Senior Advisor to JPMorgan Chase

Tony Blair Confronted At Leveson Inquiry

Fri, 09/14/2012 - 03:52 | 2793718 AldousHuxley
AldousHuxley's picture

don't go around spending that extra cash....


fake wealth effect to have you think you are richer.




Fri, 09/14/2012 - 05:11 | 2793752 Michael
Michael's picture

I'll tell you something about Jewtube MSM TV news after 5:00 AM in America.

It turns into Brain Washing and Mind Control as soon as people start waking up in the morning.

Fri, 09/14/2012 - 01:33 | 2793574 The Navigator
The Navigator's picture

To the moon Alice, to the moon.

The Honeymooners

Fri, 09/14/2012 - 00:15 | 2793509 dbomb12
dbomb12's picture

More good news for the petrodollar


Fri, 09/14/2012 - 01:50 | 2793595 Michael
Fri, 09/14/2012 - 00:20 | 2793517 dbomb12
dbomb12's picture

The next step DEVALUATION

Remarks by Governor Ben S. Bernanke
Before the National Economists Club, Washington, D.C.
November 21, 2002

"Although a policy of intervening to affect the exchange value of the dollar is nowhere on the horizon today, it's worth noting that there have been times when exchange rate policy has been an effective weapon against deflation. A striking example from U.S. history is Franklin Roosevelt's 40 percent devaluation of the dollar against gold in 1933-34, enforced by a program of gold purchases and domestic money creation. The devaluation and the rapid increase in money supply it permitted ended the U.S. deflation remarkably quickly"

Fri, 09/14/2012 - 00:52 | 2793558 Prometheus418
Prometheus418's picture


I sympathize, I really do.

But at the same time, I'm going to disagree.  And I say that as a guy whose poor timing really screwed the pooch.  Were it not for Zero Hedge, I would never have known any of what I know now- they are fantastic at analyizing the fundimentals.  Shit at timing, I'll grant you that- but I've watched every call they make come true on the 6:00 news for years.  Usually, it's the day after I liquidate my position and I have to shake and take a beating while watching the chart.

But that doesn't make them wrong- it just makes them early.  For my part, I'm pretty well done in.  If my family is still eating every day six months from now, I'll be thanking my lucky stars.  What I'm not going to do is blame this site for that- being right and being early isn't a sin of any kind.  If I'd have had enough of, well, anything else, I would be laughing my ass off today after watching silver rocket up the way it has.  Didn't take a haircut, but didn't make anything, either- and no gain is as good as a loss.

Tylers didn't do this, at least not as far as I can ascertain, and I'm not going to hang it around their necks.  There may be other nooses to be placed and tightened, but ZH isn't slated for that fate in my ledger.


Fri, 09/14/2012 - 01:32 | 2793597 The Navigator
The Navigator's picture

Cranky Old Geazer

open-ended QE3 will finish destroying the dollar - Why does Tyler not mention this?

Tyler has provided so many articles on exactly this, that hyper-spending will lead to (hyper) inflation.

Will we have deflation 1st? will it be concurrent with inflation? Or are inflationary times here/now?

Hundreds of articles on ZH have appeared over the last 3-4 years on this subject - and the arguments about gold and silver??????

You musta been on vacation those days when all this was posted???????

Fri, 09/14/2012 - 02:45 | 2793662 Uber Vandal
Uber Vandal's picture

Producer Price Index is pushing 20% already.

And, that was before QE 4EVR

Fri, 09/14/2012 - 07:23 | 2793859 gillimus
gillimus's picture

In a race to the bottom, the first one to hyperinflate wins.  Go us!!

Thu, 09/13/2012 - 21:39 | 2793073 Mactheknife
Mactheknife's picture

Wait till gasoline hits $5-6/gallon...let's see how many jobs Benny boy creates with that...

Fri, 09/14/2012 - 00:19 | 2793516 economics9698
economics9698's picture

Ben doesn’t give a shit about jobs.  His moves are to protect the inner circle of zombie banks that should be dead by now.  He will drag the US economy down just like Nicolas Biddle did in 1833.  He’s a mother fucker if there ever was one.

Thu, 09/13/2012 - 19:03 | 2792536 Vagabond
Vagabond's picture

What's to keep the Fed from vaporizing all this worthless debt?

Thu, 09/13/2012 - 19:21 | 2792607 Vagabond
Vagabond's picture

Is this basically a perpetual bank bail out?  Who are they buying the MBS from?

Thu, 09/13/2012 - 20:09 | 2792785 nmewn
nmewn's picture

"What's to keep the Fed from vaporizing all this worthless debt?"

The question of the day. At the end of it, in my opinion, THEY will be stuck with a bunch of worthless paper in exchange for their counterfeit, it really doesn't matter afterall in that sense. The currency will be worthless.

That is why elections still matter.

Would we rather have someone concerned with the intricacies of an outdated fraud or one concerned with people?

Thu, 09/13/2012 - 20:23 | 2792846 robobbob
robobbob's picture

And which one is which? cause I don't recall that latter being represented.

Thu, 09/13/2012 - 21:21 | 2793022 blunderdog
blunderdog's picture

Well, he's not going to be on the ballot in 2012, but when he shows up, you'll know who to vote for.

Thu, 09/13/2012 - 21:40 | 2793076 Bananamerican
Bananamerican's picture

Damien Thorn - 2016

Thu, 09/13/2012 - 22:20 | 2793222 new game
new game's picture

disagree; elections haven't mattered for quite a while (8 terms). most frustrating thing is the very changes needed are in the hands of the very ones that will not change a fucking thing. campaign finance reforms; simple solution 100 per entity  as defined as individual or corp or any fucking establishment ALREADY created.  And term fucking limits. and a president for 6 years, one term, two for senators and three for reps...

and fucking eh, majority vote, fuck this electorial college bs

all wish/think like mental masterbation.  sadly, i say good bye

Thu, 09/13/2012 - 20:47 | 2792915 kaiserhoff
kaiserhoff's picture

The pensions of the fuck-tard class will be vaporized.  The Kleptocrats won't like that.  Tough titties.

Thu, 09/13/2012 - 21:28 | 2793045 prains
prains's picture

Maybe the FED should borrow 2 trillion from Rummy I'm sure he's good for it

Fri, 09/14/2012 - 01:12 | 2793576 The Navigator
The Navigator's picture

Worthless debt?

Depends on the discount they are getting on REAL ESTATE.

Maybe Bernanke's been listening to Faber, Schiff, and Jim Rogers - buy/hold real assets (real estate, gold, commodities, rather than worthless paper shit.

Thu, 09/13/2012 - 21:20 | 2792894 earleflorida
earleflorida's picture

@ plath

like it or not,... japan has no way out-- they've been struggling for decades, and the hole, just gets deeper. they will have no choice but to pick the winning side. yes! that, being china.

sure they were at each others throats prior to wwii... in fact, it seems a litany of many generations-- but? generation's die off and so do grudges [memories sustained by mere abhorrent chronicles, long since forgotten too yesteryears' nightmares... where their concern is but a singularity, that once... and now forever reminiscent of a vague pledge... an allegiance- to that of a whispered deity, their god-- their living emperor?]... especially when it comes to your['s] future['s] survival.

too think that their emperor god demanded so much of a flesh and blood noble society to bring such wrath, and yet bear no consequences is a travesty, that the great japanese people shall never easily forget!


Thu, 09/13/2012 - 22:13 | 2793192 FreedomGuy
FreedomGuy's picture

"To infinity and beyond!"

-Buzz Lightyear, Keynesian Economist

Thu, 09/13/2012 - 22:55 | 2793330 Caged Monkey
Caged Monkey's picture

You should know that I logged in specifically to +1 your comment.

Fri, 09/14/2012 - 12:36 | 2795481 FreedomGuy
FreedomGuy's picture

Great! Glad you enjoyed it. Seemed appropriate.

Thu, 09/13/2012 - 18:49 | 2792470 dwayne elizando
dwayne elizando's picture

You think his rellatives will disassociate themselves from him?

Thu, 09/13/2012 - 22:32 | 2793254 mharry
mharry's picture

Weimar Republic comes to mind.

Thu, 09/13/2012 - 18:24 | 2792376 dexter bland
dexter bland's picture

If you were to spend $85 billion per month directly employing people then you would be able to pay every unemployed person in the US an annual salary of $81600 by my math.

Where is this money really going?


Thu, 09/13/2012 - 18:35 | 2792417 Silver Bully
Silver Bully's picture

'Where is this money really going?'

It is 'sterilized.' Meaning it is kept clean from the hands of the peasants.

Er, muppets.

Er, peons.

Um, you know. The little people. Oligarchs so dislike microbes coming into contact with their green paper.

Thu, 09/13/2012 - 18:44 | 2792445 I think I need ...
I think I need to buy a gun's picture

I just heard on World news tonight that Ben doesn't expect any inflation for another 2-3 years,,,,;)

Thu, 09/13/2012 - 23:08 | 2793367 ZeroAvatar
ZeroAvatar's picture

That's because the money being invoked into existence is being offset by the black-hole vortex of real estate bankruptcies.


Ben's saying they expect real estate to keep tanking for at least the next 2-3 years,,,,;)

Thu, 09/13/2012 - 18:46 | 2792460 HungrySeagull
HungrySeagull's picture






Thu, 09/13/2012 - 19:21 | 2792613 chet
chet's picture

My understanding is the money is going to fill up a huge hole of bank losses that already exists.  The bank gets rid of an MBS which they've been claiming is "worth" X million but is really worth half that.  The Fed gives them the full X million.  The money went to dig the bank out of a hole, but on their balance sheet they just traded one X million dollar "asset" for another (wink, wink).

The Fed is left with a big steaming pile of "assets" indefinitely.

Thu, 09/13/2012 - 19:39 | 2792679 Papasmurf
Papasmurf's picture

The fed is the perfect "bad bank" to hide this shit because they aren't audited.

Thu, 09/13/2012 - 20:14 | 2792806 AUD
AUD's picture

Yes but the Fed still is a bank, its obligations are still only as valuable as its 'assets'. Hence, inflation! Though I'll admit that few grasp this concept, somehow Fed obligations still catch a bid in gold, even if its falling.

Thu, 09/13/2012 - 20:24 | 2792851 FEDbuster
FEDbuster's picture

$85 billion a month of MBS and UST straight into the shit abyss.  The winds of shit are blowing, this is turning into a real shit blizard.

Thu, 09/13/2012 - 20:30 | 2792874 AUD
AUD's picture

Yeah but UST's & MBS have been junk for years already & the USD still catches a bid in gold. It has a lot of staying power for an abyss of shit.

Thu, 09/13/2012 - 21:28 | 2793048 blunderdog
blunderdog's picture

The US Dollar is the Holy Grail.  It's the dream that everyone is so totally committed to that NO ONE wants to let it die. 

The Chinese, the Japanese, the Eurozone, the UK, Israel, India, S. Africa, Saudi Arabia, Iraq, most of S. America...who in the WORLD is prepared for the dollar to stop working?

The only party I can imagine coming out ahead in a dead-dollar scenario is Russia, and I don't think they're big enough economically to clean up afterwards if it were to happen.  Too unpredictable.

Thu, 09/13/2012 - 21:50 | 2793118 Ned Zeppelin
Ned Zeppelin's picture

Everyone forgets the ultimate backstop of every fiat currency: weapons, and lots of them.  It's all about guns and gasoline friends, and the only essential PM is lead. 

Thu, 09/13/2012 - 21:58 | 2793141 blunderdog
blunderdog's picture

Yeah, but the shooting hasn't really started yet.  Smaller entities--like smart businessmen--can start dollar divestment if they want to.  It's the huge multinationals, State actors, and CBs that are all locked in.

Fri, 09/14/2012 - 00:57 | 2793567 Prometheus418
Prometheus418's picture

Hope (and fear) that you're right Ned.

Only a few little coins of the shiny stuff left, but I have crates of dull, angry lead that aren't going anywhere.

Thu, 09/13/2012 - 20:50 | 2792921 palmereldritch
palmereldritch's picture

The Ponzi Preserve

Oooooo...look at the eagle on the regal and powerful.

When in fact the inside joke amongst the bankster crims is that it's really a shithawk....



Thu, 09/13/2012 - 22:12 | 2793183 TonyCoitus
TonyCoitus's picture


Thu, 09/13/2012 - 23:02 | 2793156 hedgehog9999
hedgehog9999's picture


It has been said before, this is a bailout for Fannie and Freddie and all the banks that still own MBS assets on their balance sheets. It is not about creating jobs, there have been 2 Trillion of QE's already spent that have not done anything to create jobs and he knows that.

The guys is a fucking liar. And you can tell by his quivering voice and responses.

What he actually did Today is turn the already lower quality of the FED's balance sheet into a stinking pile of garbage as he keeps moping up all the garabage from Freddie, Fannie and the banks. While he does that , he also lowers the quality of all treasuries , particularly the longer dated ones resulting in bonds continuing down on their TREK south and interest rates going up, the idiocy of all this is that he claims he wants to lower rates even more...............

Well, rates are going higher and this is going to start creating leaks in the Interest rates derivatives  as the leaking on MBS's will be plugged for a while.

Picture him putting a finger on the dike plugging the MBS leak but to do that he has to take his finger off the long bond derivatives leak and hence you have TLT giving a weekly sell signal Today while TBT getting a weekly buy signal.

I've been saying he can't suck and blow at the same time...... something has to give.

Fri, 09/14/2012 - 07:23 | 2793542 rufusbird
rufusbird's picture

Good observations!

Thu, 09/13/2012 - 23:54 | 2793465 Zadok
Zadok's picture

First of all, it's not money. It's fiat currency. When the con-fidence runs out and the perception that it is money fails, then this scam will be replaced with another.

Thu, 09/13/2012 - 18:33 | 2792410 NotApplicable
NotApplicable's picture

In other news, gold is heading up again in the evening Globex session. Crrently $1771.

Thu, 09/13/2012 - 21:21 | 2793021 dexter bland
dexter bland's picture

Grab a barrell of the black stuff while you're at it.

WTI currently getting ready to test $100...

Thu, 09/13/2012 - 18:46 | 2792456 MillionDollarBogus_
MillionDollarBogus_'s picture

Draghi et al must be envious as all hell...that Bernanke can just announce the Fed will just start buying up debt....directly..!!!!!!!!

Screw the secondary bond the fricken debt from the Treasury.......

In itself an amazing simple plan..........

Thu, 09/13/2012 - 18:47 | 2792465 HungrySeagull
HungrySeagull's picture

The Frigging PENTAGON Burns equal to or greater than most Nation's Military Budgets ... just the Pentagon.


And the 100 year old Fed Building... a hell of alot more than that.

Thu, 09/13/2012 - 19:05 | 2792549 CrashisOptimistic
CrashisOptimistic's picture

He's not buying from Treasury.

He's buying MBS.

From banks.  Their shit unMarked to Market MBS.  He'll pay 2004 prices, too.

Thu, 09/13/2012 - 20:08 | 2792782 LawsofPhysics
LawsofPhysics's picture

Correct, this stimulus is for the banks, keep up the appearance of solvency, no matter what. Same as it ever was. Banks and wall street win, the taxpayer loses.

Thu, 09/13/2012 - 20:27 | 2792860 FEDbuster
FEDbuster's picture

$40 billion/mo MBS, $45 billion/mo UST.  Can he keep up with Debt Brother's credit card addiction?

Thu, 09/13/2012 - 21:20 | 2793020 CrashisOptimistic
CrashisOptimistic's picture

The US Ts are sterilized.  That's twist, sell short end, buy long end.  Those don't expand the balance sheet.

The MBS do.

Thu, 09/13/2012 - 21:35 | 2793065 FEDbuster
FEDbuster's picture

Who really knows what the man behind the curtain is up to?

Fri, 09/14/2012 - 08:35 | 2794028 YHC-FTSE
YHC-FTSE's picture

+1 "He's not buying from Treasury. 

He's buying MBS. From banks.  Their shit unMarked to Market MBS.  He'll pay 2004 prices, too."


That's essentially all one has to remember about the latest QEx. A lot of people have joked that x=infinity, but the joke is on us isn't it? Because that's precisely what the Bernanke intimated. Since nobody else has mentioned it on the thread, I think it is worth considering the derivatives timebomb in order to explain the continuing largesse to the banks. Just four banks, Goldman Sachs(GS), Citi(C), BofA(BAC), and JP Morgan(JPM) hold 95.9% of US derivatives. The notional value of these derivatives are worth over...(wait for it)... $600 Trillion. (To put it in to perspective, the combined GDP of every nation on the planet is only 65 trillion dollars). 

The thing is, the risk in these derivatives have not improved, but have gotten a lot worse. That's great if you've got CDS on PIIGS debt on the cheap and made a pile off the rising risks, even though at the end of the day, the counterparty risk is laughable. But for the rest of us normal people, the risk of being priced out of staple foods is very real and immediate. Uncontrollable inflation - hyperinflation - is always greeted with disbelief by those who placed their trust in the pretty bits of paper (linen & cotton actually, but who cares?), and the even more easily manipulated bits of data issued by the crooks in charge. Don't be one of those surprised people - if you are a regular visitor to ZH, not being prepared for the inevitable is silly.

What about timing? That's a tricky subject, because a lot of the readers have been waiting for the complete collapse of the markets for some time now. Let's just say that Bernanke's injection of taking MBS off the banks' books at a rate of $40 billion/month to help with the cash flow of these four insolvent institutions will have a net effect of.... NOTHING. The survival of every business is dependent on its cash flow, no matter how big its assets, turnover, and net profits. All he is doing is helping with the cash flow, and even if he was making a dent in the growing derivatives timebomb (ie all of Bernanke's cash was being used to neutralize the derivatives), it will take 15,000 months or 1250 years to buy up over $600 trillion dollars worth. It ain't possible bud. So the market collapse will happen, I just cannot guess when nor will I even bother.

The global economy is not going to turn around any time soon. Most pragamatists are looking at 2018 and further for growth. If the US economy had collapsed 5yrs ago, Hank Paulson was fired (or jailed), and there was no bailout of the banks, the USD would have lost its reserve status, and there would have been unimaginable turmoil for awhile locally. But we would now probably be looking at recovery. What we are looking at instead today is an abyss of such proportions that converting my assets to PM is only third on my list of priorities after FOOD, and SECURITY. The man-animal is extremely ugly at the best of times. Imagine what he could be when he is hungry. 

Thu, 09/13/2012 - 20:11 | 2792790 slyhill
slyhill's picture

I guess Texas should be pissed. Isnt that our Germany? Where is Perry? Oh yea...

Thu, 09/13/2012 - 19:46 | 2792699 LawsofPhysics
LawsofPhysics's picture

The only thing going down is the dollar, completely according to plan. America is fully owned bitchez.

Thu, 09/13/2012 - 20:13 | 2792802 Banksters
Banksters's picture

The banksters just voted for obama. Do not worry, we never had a choice. We are fucked...

Fri, 09/14/2012 - 00:40 | 2793548 rufusbird
rufusbird's picture

Dam this is a good thread! Another astute observation.

Fri, 09/14/2012 - 00:59 | 2793568 rehypothecator
rehypothecator's picture

They didn't just vote for Obama, they gave a multi-trillion dollar campaign contribution to Obama. (Nevermind the federal laws on donation limits.)  Then again, laws are made to protect the elites from those they plunder.  

Given that Romney said he would fire The Ben Bernanke, it might just be that little Benny wanted to engage in a wee little bit of Conflict Of Interest and create or save at least one job - his own.  Nice work if you can get it.  

Why am I suddenly thinking about lamp posts?

Thu, 09/13/2012 - 18:04 | 2792300 tmosley
tmosley's picture

Probably because you don't have enugh silver and gold.

Thu, 09/13/2012 - 18:17 | 2792344 malikai
malikai's picture

It is possible to have enough silver and gold?

Thu, 09/13/2012 - 18:33 | 2792408 IndicaTive
IndicaTive's picture

Or popcorn? Gonna be one hell of a show.



"Stroudsburg, Monroe County - Robert Kash loves popcorn but Mother Nature apparently does not. Triple digit temperatures and the worst drought on record shriveled corn crops. Kash said,"I said to my wife 'well looks like popcorn is going to go up so let's go stock up on popcorn.' So I went and bought three big bags of unpopped popcorn." 

Kash was able to save some money on popcorn for home movies but what about a trip to the theater? Many say it's just not the same without the buttery treat. "They just go hand in hand, it's like peanut butter and jelly," smiled Magen Kirschner of Marshalls Creek."

Got yours?


Thu, 09/13/2012 - 20:13 | 2792800 Gully Foyle
Gully Foyle's picture


About a month ago I saw some Prepper post about buying Popcorn in bulk. I can't recall the reason, easier storage? Grinding?

It was not about keeping it for popping.

Maybe someone could clear it up.

Thu, 09/13/2012 - 20:31 | 2792878 FEDbuster
FEDbuster's picture

You can never have enough silver or gold.  You can never have enough ammo or food.

BEANS, BULLETS and BULLION the survival portfolio.

Popcorn stores better (drier) than yellow field corn, and can be ground up and used for corn flour.

Thu, 09/13/2012 - 20:35 | 2792885 JohnG
JohnG's picture

It's just treats for the kids, and chickens eat what the kids drop.  Sorta nutritious, and keeps bellies full.

Fri, 09/14/2012 - 00:02 | 2793483 RobD
RobD's picture

Makes the best corn bread, kinda hard on the grinder though and you need to sift the meal good to get the hard skins. Plus you can pop it. You know what the best popping oil is? Bacon grease and a close second is coconut oil. 

Fri, 09/14/2012 - 14:14 | 2796072 XitSam
XitSam's picture

Yes, it's for cornmeal.

Fri, 09/14/2012 - 09:04 | 2794200 BeerBrewer09
BeerBrewer09's picture

TIme to stock up on malted barley. Brew beer with it, or eat it, or both.

Thu, 09/13/2012 - 20:32 | 2792880 AUD
AUD's picture

It is possible to have enough silver and gold?

It is never possible to have enough money.

Thu, 09/13/2012 - 18:26 | 2792384 humblepie
humblepie's picture

If you can't wake up from it, is it still a dream?

Thu, 09/13/2012 - 20:14 | 2792803 Gully Foyle
Gully Foyle's picture


If you were truly awake you could see the shape of the plan.

Thu, 09/13/2012 - 23:18 | 2793394 ZeroAvatar
ZeroAvatar's picture

Frankly, Gully, I've read you're comments lately and I'm afraid I don't agree with you on a LOT of things.


We're all entitled to our opinions, though, right?  I'll fight for your right to say what you think.

Thu, 09/13/2012 - 20:19 | 2792829 asteroids
asteroids's picture

Why MBS? Why not buy $40B/mo in something that would actually create jobs? The FED seems to have forgotten it's mandate. You Amerikans should really be pissed.

Thu, 09/13/2012 - 17:43 | 2792189 jekyll island
jekyll island's picture

What are their off balance sheet obligations?  Probably a multiple of that number. 

Thu, 09/13/2012 - 18:04 | 2792296 Raynja
Raynja's picture

its all about the net.



if they want to print money and they want to increase employment,

then why the fuck don't they pay people to do stuff.

Thu, 09/13/2012 - 18:43 | 2792443 AGuy
AGuy's picture

"if they want to print money and they want to increase employment, then why the fuck don't they pay people to do stuff."

Your mistaken, The do pay people, they just happen to work at Goldman Saks, JPM, Black rock, etc.

Oh! You mean Pay people on Mainstreet. Bah! What would the common folk do with all that money? No better to give it to Goldman Saks so they can do "God's Work"!


Thu, 09/13/2012 - 18:08 | 2792314 NotApplicable
NotApplicable's picture

When one has a magic checkbook, obligations are mere formalities. Especially when it is all others who will pay the price.

Thu, 09/13/2012 - 17:44 | 2792192 Jendrzejczyk
Jendrzejczyk's picture

If you had access to a printing press, would you buy MBS or gold?

Thu, 09/13/2012 - 17:51 | 2792229 rehypothecator
rehypothecator's picture

MBSs of course.  Those are now backed by the fed, while gold isn't backed by anything. 

Thu, 09/13/2012 - 17:56 | 2792258 negative rates
negative rates's picture

Well today its backed by some 1740 dollars an ounce, unless those dollars have become backed by the same  nothing that you have produced.

Thu, 09/13/2012 - 18:08 | 2792317 NotApplicable
NotApplicable's picture

Par, bitchez!

Thu, 09/13/2012 - 19:14 | 2792580 max2205
max2205's picture

I'll just send my mortgage check to Ben from here on. WFC wont mind?

Thu, 09/13/2012 - 17:56 | 2792250 Dr. Engali
Dr. Engali's picture

Those closest to freshly printed dollars benefit the most. The primary dealers will be buying gold preparing for the next currency regime. Make no mistake this is the end game. Benny just pulled the plug on the dollar.

Fri, 09/14/2012 - 01:27 | 2793592 Clashfan
Clashfan's picture

Doc, sorry to be so slow, but what will replace the dollar and why/when? Won't other currencies choose to participate in the debase race, too?

China and Euro certainly will, right?

Fri, 09/14/2012 - 14:30 | 2796208 XitSam
XitSam's picture

When? unknown, because it depends on the decisions of people (take your pick: Merkel, Ben, Congress, POTUS, Russia, Dimon, ...). Why is an easier question than what. Why? Because inflating the money supply, as Ben just promised to do, decreases the value of the dollar, to where no one (US or otherwise) can use it, it loses reserve currency status, de facto if not officially, US oil prices skyrocket, econmy sinks, etc. Not specifically this way, there will be variations but it will sink.  What? Depends on legal tender laws, how desperate people are on Main St, etc.  Barter? Surely.  There isn't enough of any commodity at anywhere near current prices to service the economy. In international trade: Yuan, gold surely, SDRs, something new. Who knows.  Debase: yes, happening now, read Currency Wars by Rickards.

Fri, 09/14/2012 - 17:39 | 2797125 Clashfan
Clashfan's picture

Thanks for the effort. I understand the concept behind inflation, but considering the banks' balance sheets (unofficial, actual value), I'm not sure how inflationary this move will be except in commodities, and I don't agree that there's an oil shortage per se.

If the dollar loses reserve status, something will have to replace it. I can buy SDR before another currency, especially if they are all participating in the debase race, too, hence my q.

Thu, 09/13/2012 - 17:58 | 2792263 rehypothecator
rehypothecator's picture

Did I forget to put in a /sarcasm in my last post, by any chance?  Yes.  Yes, I did. 

Thu, 09/13/2012 - 18:09 | 2792321 NotApplicable
NotApplicable's picture

Nah, I saw it.

Somebody just needs a new battery in their detector.

Thu, 09/13/2012 - 17:45 | 2792195 holdbuysell
holdbuysell's picture

"Finally, and what is scariest, is that as of this moment, all of this is priced in. Any incremental gains in the stock market will have to come from additional easing over and above what Bernanke just announced."

Come again??

Thu, 09/13/2012 - 19:04 | 2792543 spastic_colon
spastic_colon's picture

the fed just transferred the responsibilty of jawboning to the BLS, Census, etc. and any other GSE so the stock market gains will come from bad economic reports that are percieved to be backstopped by endless QE......evil genius

Fri, 09/14/2012 - 05:13 | 2793755 Snidley Whipsnae
Snidley Whipsnae's picture

spas colon... THE reason that sites like Shadow Stats exist.

Going forward we will need sites that keep the REAL SCORE, not the score as presented by various gov agencies that skew the numbers with various 'adjustments'.

Not that the real score vs the gov score will matter anymore except for those that will be writing the history of how this train wreck happened.

Good luck to us... We're going to need it.


Thu, 09/13/2012 - 17:45 | 2792197 buzzsaw99
buzzsaw99's picture

let the poor man get a loan [/jethro tull]

Thu, 09/13/2012 - 17:45 | 2792202 economessed
economessed's picture

That first chart "Historical and Projected Fed Balance Sheet" is identical to my own personal chart "Historical and Projected Ammunition Stockpiles."  I couldn't believe the similarity!

Thu, 09/13/2012 - 17:48 | 2792221 holdbuysell
holdbuysell's picture

Were you doing extensive target practice in early 09?

Thu, 09/13/2012 - 20:04 | 2792773 toady
toady's picture

I just inherited a 30.6 with only twenty rounds... my dad died more than 15 years ago and my uncle 'forgot' to give it to me. (He 'remembered' when he got a new deer rifle! ) Now I need to start piling up 30.6... I suppose I could sell it.... but sentimental value & all....

Thu, 09/13/2012 - 21:41 | 2793082 blunderdog
blunderdog's picture

Why would you ever consider selling a .30-06?  That's the ideal battle-rifle round.

Thu, 09/13/2012 - 23:13 | 2793377 toady
toady's picture

Was there a missing /sarc?

30.06 isn't a battle rifle... 6 shot bolt action? Maybe a sniper rifle...

I've been trying to just do 7.62, 12 guage & 22.

Thu, 09/13/2012 - 23:44 | 2793441 blunderdog
blunderdog's picture

The ideal battle rifle ROUND--if you can get your hands on a decent M1, it has a lot to say for it. 

But even the old-school six- shot bolt action should be sweet if you can get mags.  You're not going to be up against gangbangers with Mac-10s, are you?

The point is: it HITS people, unlike all the popular souped-up .22s these days.

Fri, 09/14/2012 - 09:59 | 2794521 toady
toady's picture

7.62 is my choice. Gotta have the full auto in case a hoard of gangbangers makes it to the deep dark woods!

Fri, 09/14/2012 - 18:58 | 2797375 blunderdog
blunderdog's picture

Ah, for the good'ole days of the $50 SKS.  It's a piece of shit, but it's CHEAP.

Thu, 09/13/2012 - 17:46 | 2792203 Bay of Pigs
Bay of Pigs's picture

Great plan they have going there. Im sure it will work out fine. <sarc>

FUBAR is more like it.

Thu, 09/13/2012 - 17:51 | 2792234 Overflow-admin
Overflow-admin's picture

Don't worry, I'm sure it's the good solution because they ALL are applying it... Oo


Thu, 09/13/2012 - 17:45 | 2792204 Rainman
Rainman's picture

You can check out any time you like, but you can never leave.

Thu, 09/13/2012 - 17:51 | 2792233 Yen Cross
Thu, 09/13/2012 - 20:29 | 2792564 fuu
fuu's picture

Is that you on guitar?

Thu, 09/13/2012 - 21:16 | 2793004 palmereldritch
palmereldritch's picture

I believe that technique is called overdu(m)b

Thu, 09/13/2012 - 17:46 | 2792206 fonzannoon
fonzannoon's picture

In honor of the dumbest monetary move I will ever recognoze I am (again) pasting this post, from an author who's name I cannot remember...who very eloquently described what we saw today. I once again encourage he/she to come out and take a bow.

"Hope you didn't put much money on that bet, Dawg. These fuckers are going to print hard enough to wake the dead. They'll print like mo'fos, print like mad men, print like fly pimps. Print until their eyes bleed.

They will print via the swaps, via bank bailouts and mergers, via fixed Treasury yields, via real honest-to-God negative interest rates, via loans to banks on no collateral, via payroll tax reductions, and in the end via actual fiat paper instruments which they might very well drop in bails from actual mutherfucking helicopters. They will not give two figs what anyone thinks. Here is why. Because this is the Goddamned end of it my friend. There is no accounting beyond this point. There will be no history of it. No one to take notes of rates of exchange, or of the graft and violence, nobody to worry about the deficit or the GDP or the national debt of any nation large or small under the blazing Goddamned sun. End. Of. It. Does anyone bitch about how Rome totally debased their coinage at the end? Hell no. But whoever did it had enough to hand and grabbed some land with a nice vineyard and sat back and waited for the Middle Ages to start 700 years further on. And that's what a singularity is about. Anything that passes through is striped of all meaning. Nothing we think is important now will remain so beyond the event horizon. Nobody will remember, nobody will write about it, nobody will be held to any standard. Ever for evar. So yeah, they'll print like the mad crazed terrorists they are. Because they have nothing to lose, and maybe something to gain. Maybe a dollar. Maybe a day. Maybe a slim chance to escape with some of the loot. Whatever the fuck advantage they see in it, for themselves and their elite crap wanking buddies, they will full-on-full-time-fucking do it to advantage. Watch for it, Dawg. It's totally on this time, on like Donkey Kong. And when the dust is settled in a generation hence it's going to have become another unbelievable episode among the ages of men."
Thu, 09/13/2012 - 17:50 | 2792226 Dr. Engali
Dr. Engali's picture

Love that post. I'm glad you saved it.

Thu, 09/13/2012 - 18:18 | 2792353 Yen Cross
Yen Cross's picture

Me to :-)

Thu, 09/13/2012 - 20:21 | 2792839 Yes_Questions
Yes_Questions's picture

Me three!

Thu, 09/13/2012 - 21:10 | 2792991 mccoyspace
mccoyspace's picture

easy on the inflation guys, we've got enough in the system already.

Thu, 09/13/2012 - 18:02 | 2792291 Dr. Gonzo
Dr. Gonzo's picture

I remember that post. Fucking classic. I think I went the the coin shop and bought another gold maple leaf after reading it. Dude was right. 

Thu, 09/13/2012 - 18:03 | 2792293 kito
kito's picture

it certainly wasnt me....................................

Thu, 09/13/2012 - 18:23 | 2792373 fonzannoon
fonzannoon's picture

Hey Kito, You lost a turkey sandwich, but don't forget, you said they would print, just after the election. So it was a timing thing. I also saw gas go from $4.09 to $4.25 today. Rising prices are going to crash the market. When that wealth effect goes down the toilet it prob will be a deflationary crash. The only difference is the dollar will be toast when the rest of the world says enough. We will end up paying higher prices and will not have a pot to piss in at the same time.

Thu, 09/13/2012 - 18:38 | 2792424 kito
kito's picture

yes, as i posted earlier, i didnt think he would risk politicizing the fed this close to elections, when people hang on every word of obamney...............ben has all of the headline numbers under control, why take this chance now?....i really pegged it for q1 2013 or still holding firm with my call that this all comes crashing down in a deflationary tsunami and that ben wont turn up the presses at the very end.............i still think he is trying to walk the high wire of deleveragaing/printing to keep some appearance of equilibrium.................either way, bad things are coming..............this country will end up literally third world within a decade or so....................some cities/areas do relatively well, most other parts of the country will be picking through garbage......................classic third world demographics..............

Thu, 09/13/2012 - 18:40 | 2792437 fonzannoon
fonzannoon's picture

The bottom line is the same crackheads that crashed the world 4 years ago are still steering the boat and playing slalom with the icebergs.

Thu, 09/13/2012 - 21:22 | 2793023 palmereldritch
palmereldritch's picture

...and their goal is to sink the fucker but not before looting the passengers and auctioning off the lifeboats

Fri, 09/14/2012 - 00:30 | 2793533 Squid Vicious
Squid Vicious's picture

at first i read "playing SHALOM with the icebergs" lol...

Thu, 09/13/2012 - 22:02 | 2793159 infinity8
infinity8's picture

Kito, I was totally with you on this one and need to buy the fucking world a turkey sandwich and a goddamn coke.  Raising a glass of scotch to you. . .

Thu, 09/13/2012 - 20:19 | 2792821 ThankYouSirMayI...
ThankYouSirMayIHaveAnother's picture

That is a great post bitches, makes me want to watch Mad MaxThunderdome

Thu, 09/13/2012 - 17:51 | 2792208 mikla
mikla's picture

Simple:  Fed prints for free, and uses that "paper" to seize-real-assets.  (Some people would call it "buying", but a more proper term is, "seizing").

The Fed is establishing itself as an owner-of-real-assets.  It doesn't matter how much printing, nor what is the value of the "dollar".

This is illegal, and against its charter, but hey, who cares?

Thu, 09/13/2012 - 17:52 | 2792231 Blasé Faire
Blasé Faire's picture

You almost have it - it's ALMOST free because they still have to pay for the paper they print on.  But wait, they pay for that with the paper they're printing on.  NOW I GET IT.  They just took this idea and applied it to EVERYTHING.  Inflate away boys, inflate away. 

Thu, 09/13/2012 - 18:21 | 2792363 Jendrzejczyk
Jendrzejczyk's picture

Would MBS's be considered "real assets"?

Thu, 09/13/2012 - 18:37 | 2792411 mikla
mikla's picture

It depends on whether the MBS establishes a claim on the real asset.

At present, that's unclear.  However, I expect there will be a "ruling" or "legislation" that resolves that, and for practical reasons, it will be decided that the Fed "owns" the house.

So yes, they will probably be real assets.

The other option:  States do like California is doing, and merely "seize" the asset as "State Property".  In that case, the MBSs are worthless.  But, they were "free" anyway, and the Fed buying them gives a "pass" to the Banksters who are insolvent and need to dump the MBSs, so it's still a win for Central Banking.

Fri, 09/14/2012 - 00:34 | 2793539 Squid Vicious
Squid Vicious's picture

no that is the beauty of mark to model...until the fed wipes it off their asses they don't have to take any hit to their ratios,,,and then it's gone... 

Thu, 09/13/2012 - 17:47 | 2792211 Bunga Bunga
Bunga Bunga's picture

Finally we got the exponential growth back Keynesian define as sustainable economics.

Thu, 09/13/2012 - 17:56 | 2792212 johnQpublic
johnQpublic's picture



so the feds balance sheet will be roughly 45% of GDP by the end of obamas second term

will the next president still blame it all on bush?

Thu, 09/13/2012 - 18:02 | 2792288 johnQpublic
johnQpublic's picture

at some point it will be physically impossible to audit the fed

or maybe they plan to employ every accountant in america to do it, and thats how they fix the unemployment problem

er sumthin


and you know at some point, just due to mission creep they have to push those numbers up and some point in the next ten years the fed balance sheet will be a meager 100% of GDP

Thu, 09/13/2012 - 17:47 | 2792213 Dr. Engali
Dr. Engali's picture

If we make it to 2013. There may be a few creditors who are a little pissed off by being paid of in freshly printed dollars. Let's face it.. This trade is never getting unwound.

Thu, 09/13/2012 - 17:57 | 2792264 Blasé Faire
Blasé Faire's picture

But just think how much potential there has been historically for trades that are never unwound.  Gold.  Apple.  Microsoft.  RIMM.  Bre-X.

Buy.  Hold.  And later, Die Holding On.

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