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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Papasmurf's picture

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

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.

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.

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.

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.

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. 

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.

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.

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....



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.

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.

NotApplicable's picture

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

dexter bland's picture

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

WTI currently getting ready to test $100...

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..........

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.

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.

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.

FEDbuster's picture

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

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.

FEDbuster's picture

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

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. 

slyhill's picture

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

LawsofPhysics's picture

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

Banksters's picture

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

rufusbird's picture

Dam this is a good thread! Another astute observation.

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?

tmosley's picture

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

malikai's picture

It is possible to have enough silver and gold?

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?


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.

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.

JohnG's picture

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

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. 

XitSam's picture

Yes, it's for cornmeal.

BeerBrewer09's picture

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

AUD's picture

It is possible to have enough silver and gold?

It is never possible to have enough money.

humblepie's picture

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

Gully Foyle's picture


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

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.

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.

jekyll island's picture

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

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.

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"!


NotApplicable's picture

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

Jendrzejczyk's picture

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

rehypothecator's picture

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

max2205's picture

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