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

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
ZeroAvatar's picture

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

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:

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?

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.

TheSilverJournal's picture

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

Sylvia Plath's picture

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

smlbizman's picture

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

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?


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."

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.   

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

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.

Michael's picture

Tony Blair Appointed Senior Advisor to JPMorgan Chase

Tony Blair Confronted At Leveson Inquiry

AldousHuxley's picture

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


fake wealth effect to have you think you are richer.




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.

The Navigator's picture

To the moon Alice, to the moon.

The Honeymooners

dbomb12's picture

More good news for the petrodollar


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"

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.


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???????

Uber Vandal's picture

Producer Price Index is pushing 20% already.

And, that was before QE 4EVR

gillimus's picture

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

Mactheknife's picture

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

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.

Vagabond's picture

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

Vagabond's picture

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

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?

robobbob's picture

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

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.

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

kaiserhoff's picture

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

prains's picture

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

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.

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!


FreedomGuy's picture

"To infinity and beyond!"

-Buzz Lightyear, Keynesian Economist

Caged Monkey's picture

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

FreedomGuy's picture

Great! Glad you enjoyed it. Seemed appropriate.

dwayne elizando's picture

You think his rellatives will disassociate themselves from him?

mharry's picture

Weimar Republic comes to mind.

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?


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.

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,,,,;)

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,,,,;)

HungrySeagull's picture






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.