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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 - 18:02 | 2792286 fonzannoon
fonzannoon's picture

I hope the Asian markets throw a hissy fit overnight and tomorrow is Christmas morning with it at $1,900.

Thu, 09/13/2012 - 18:10 | 2792319 Dr. Engali
Dr. Engali's picture

I'd rather have a small creep up before lift off. Personally I think that silver price needs to get out of reach from the sheep before gold lifts off.

Thu, 09/13/2012 - 18:29 | 2792378 fonzannoon
fonzannoon's picture

Who knows. Like you have been saying today. This will not be a controlled situation from here on out. Shit, Germany has to be seething at the Euro right now. They prob come out tomorrow and set Draghi loose.

Thu, 09/13/2012 - 19:30 | 2792644 Poor Grogman
Poor Grogman's picture

Hard to believe they are really this stupid..

Central planning through and through...

Thu, 09/13/2012 - 18:29 | 2792390 Temporalist
Temporalist's picture

My thinking is that the eastern markets have been holding the price high and now it's the west's turn to catch up.  With people like Soros, Paulson, Gross, Einhorn and Dalio talking about gold as an asset recently and making "investments" into it (as well as others I've seen on the financial "news" outlets) the west will wake up like it was dropped into a scalding bath of oil (or ink depending on your choice of imagery) to get some hard assets.

 

Or the Asians will just keep buying.  Either or...

Thu, 09/13/2012 - 18:30 | 2792395 SRVDisciple
SRVDisciple's picture

Suddenly I find myself rooting for the Mayans.

Thu, 09/13/2012 - 18:44 | 2792446 seek
seek's picture

We'll make it through 2013. I'm even betting we make it to 2015.While we're seeing hints of inflation and countries realigning outside of sphere of USD as the reserve currency, we're nowhere close to the point where the dollar is rejected enough (aka creditors pissed off enough) to trigger hyperinflation, and normal inflation isn't anywhere near where it will eventually be.

However, we won't make it to 2020, I'm certain of this. So the wheels fall off probably around 2015-2018. My bet is on 2016-2018.

The scary part of this is what Tyler touched on -- and something I keep pointing out to anyone who wishes to discuss this -- half the budget is being financed by the Fed (it's about 40% now.) This is scary (and critical) because when the inevitable does happen (be it a full currency collapse or, laughably if the government decides to balance the budget to save itself) because the Laffer curve and Hauser's law shows we'll never see more than about 30% GDP in tax revenue.

It is completely certain and inevitable that we will see a massive shrinkage of the real costs of the federal budget of such magnitude it can only be achieved by huge demobilization of the military and cutting the social services budgets by half or more. And this assumes an economy unaffected by any of this! The current problem is completely unfixable, regardless of a government collapse and "reform," conversion to full-on communism, you name it, it won't be able to fulfill even half the promises made or sustain the current standard of living, regardless of what it promised at that time.

Why do I think it's 2016 and no later than 2020? GDP is presently about 15T, US Federal budget is 3T and we're going to be seeing half of this from the fed -- 1.5T. That's 10% inflation per year, just from printing to cover the deficit, and it's increasing. By year-end 2016, that's  50% inflation; by 2020, we hit 100% inflation. The dollar will have devalued as much as what would need to have been cut from the budget to fix the problem -- so either way we reach the point of maximum pain in those years. Most probably the budget and printing will expand faster as inflation increases, as the government tries to keep operating at the status quo, and this accelerates things. If they don't, we could get as far as 2020, if they do, the pace quickens, and maybe we hit the 100% point earlier; it'd take 20% inflation to get us there by 2016. If gold is any indicator, the current annual rate of return compared to 5-6 years ago is about 16% in USD, and using that as a proxy for real inflation rates results in 100% inflation (USD value cut in half) in 2017.

There's time left. Not much, but there's time left. Today's move by the Fed signals the terminal phase of this disaster.

 

Thu, 09/13/2012 - 17:47 | 2792214 Sutton
Sutton's picture

I feel chained in the back of the cab of a gasoline tanker as Ben and Obama smoke meth ,blast rap and and push on the accelerator.

Thu, 09/13/2012 - 18:52 | 2792486 HungrySeagull
HungrySeagull's picture

It matters not if you are within 300 yards of a gasoline tanker.

A mile of a Propane tanker....

10 miles of a ammo truck.

 

Anywhere within earshot of a Bee Truck...

Thu, 09/13/2012 - 17:51 | 2792215 CrashisOptimistic
CrashisOptimistic's picture

The issue not being discussed is simply this: 

Where are the MBS coming from?

They aren't part of government fiscal deficits.  They are bank balance sheet trash that aborting Mark To Market has allowed to remain invisible to accountants.

There are 10s of trillions of this shit on bank balance sheets and the Fed is willingly taking the shittiest of it onto their own balance sheet.

Someone should hang for this.  This is buying bank balance sheet nothingness and paying 2004 prices for it, using taxpayer money.

Someone should surely hang for this.

Thu, 09/13/2012 - 17:53 | 2792247 Nothing To See Here
Nothing To See Here's picture

Am I wrong or didnt the Treasury also bought MBS from the banks back in 08-09?

Thu, 09/13/2012 - 18:01 | 2792285 CrashisOptimistic
CrashisOptimistic's picture

You're mostly wrong.  Treasury bought preferred shares and outright common shares to recapitalize the banks.  They bought no MBS that I know of.  Treasury has no department devoted to owning mortgages.

Thu, 09/13/2012 - 18:09 | 2792318 buzzsaw99
buzzsaw99's picture

if you don't count the agencies.

lololololololol

Thu, 09/13/2012 - 17:56 | 2792256 gunsmoke011
gunsmoke011's picture

Exactly - as I explained to my Senator today. This is simply Criminal - but not all that surprising since the FED is owned by the banks anyway. The Criminal part is - the average Joe is too ignorant to understand what is happening - and the Congress who is supposed to be informed and looking out for stupid Joe - is allowing it to happen. I'm sure at the end of the day when it all blows up - they too will claim they have been had - and stupid Joe will buy that too. Sad Really.

Thu, 09/13/2012 - 18:13 | 2792330 hannah
hannah's picture

funny but i bet your congressman was standing there thinking 'god i wish this stupid joe would just shut up and go away' as he was nodding agreement and smiling at you and thinking 'this stupid joe just doesnt get that i know all about the corruption and i am profiting from it'.....

Thu, 09/13/2012 - 19:55 | 2792734 Bull Bear
Bull Bear's picture

Does anyone know who are the MAJOR Shareholders for the Fedreal Reserve? And if someone Knows can you Publish who they are!

Fri, 09/14/2012 - 09:35 | 2794378 new game
new game's picture

glad my name isn't joe

Thu, 09/13/2012 - 18:03 | 2792298 sdmjake
sdmjake's picture

"The price of apathy towards public affairs is to be ruled by evil men"  -Plato

Thu, 09/13/2012 - 18:23 | 2792368 ZeroDroids
ZeroDroids's picture

1.) Who exactly is on the sell side of all the trades, and what are the terms? I.e. price, repo agreements if any, conditionalities?

2.) Can anybody with knowledge of MBS prices before/after QE share some insights?

Thu, 09/13/2012 - 18:45 | 2792453 csmith
csmith's picture

Entire US resi mortgage market is only $10 trillion.

Thu, 09/13/2012 - 19:07 | 2792558 CrashisOptimistic
CrashisOptimistic's picture

It is now, if you overprice the value of the mortgages.

What was it in 2005?

Thu, 09/13/2012 - 20:53 | 2792934 SDShack
SDShack's picture

Well, since the national median home price has dropped about 1/3 since peak, one could assume the retail residential real estate market in 2005-2006 would be about $15T.

Thu, 09/13/2012 - 21:26 | 2793040 CrashisOptimistic
CrashisOptimistic's picture

Sounds reasonable.  So a bit of hyperbole on my part about 10s of Trillions.

We'll go with . . . say, 7 trillion of MBS shit on unMarked to Market bank balance sheets, recorded on those balance sheets at a full 7 trillion, instead of the actual 2 trillion.

At 40 billion per month, Ben will have that 5 trillion of bullshit absorbed in what, 10 years?  You realize what the world will look like if he then tries to withdraw 5 trillion from the money supply?  

 

Thu, 09/13/2012 - 19:04 | 2792542 resurger
resurger's picture

This is becoming a joke

Thu, 09/13/2012 - 20:19 | 2792826 slyhill
slyhill's picture

I thought that "those who owned the tungnsten mAkes the rulez." Am I wrong bietchez??

Thu, 09/13/2012 - 21:54 | 2793131 blunderdog
blunderdog's picture

     This is buying bank balance sheet nothingness and paying 2004 prices for it, using taxpayer money.

It's not *just* taxpayer money.  The Fed's game is global, not national.  Plenty of non-taxpayers are getting fucked, too.  But as bad as this is in every "real" sense, it STILL APPEARS BETTER than the alternative for *everyone* involved in the decision process.

The "inflation cost" is borne by everyone on the planet who holds dollars.  That's considered a better price than letting the dollar "value" go to zero.  People will continue to play ball until the inflation losses begin to approach the cost of trying to reprice all assets into a different currency (or commodity).

Fri, 09/14/2012 - 02:17 | 2793636 oldman
oldman's picture

@crashisoptimistic

Hey Crash,

I agree with you completely with the exception of:

"This is buying bank balance sheet nothingness and paying 2004 prices for it, using taxpayer money."

It is not really 'taxpayer money', if the taxpayers cannot pay or if it is ruled 'odious debt' like the US declared in the case of Iraq before it set up Iraq's new CB.

Maybe, the Fed has hung itself this time----time will tell whether 'we the people' have the balls to give it back to the Fed in one way or another.

Please tell me if I am wrong about this---an oldman can't remember everything.

Thanks for the good post     om

Thu, 09/13/2012 - 17:49 | 2792219 Yen Cross
Yen Cross's picture

 The Bernanke/Draghi hangover is about to begin! Tyler is/was epic on the call!

Thu, 09/13/2012 - 18:29 | 2792394 Jendrzejczyk
Jendrzejczyk's picture

I'm proud of you for taking their advice. Stick to the regimen!

Thu, 09/13/2012 - 18:36 | 2792423 Yen Cross
Yen Cross's picture

Jendrzejczyk     pre or post war Polish?

Thu, 09/13/2012 - 19:28 | 2792636 Jendrzejczyk
Jendrzejczyk's picture

Just an Avatar Yen. Somebody wacked me/him in the head in broad daylight in DC and I just want his work and life to be remembered. His first name was Michael.

http://www.nytimes.com/2003/05/04/obituaries/04JEND.html

I've heard what the official story is, and I KNOW what the cop told his widow the day it happened.

 

Fri, 09/14/2012 - 00:29 | 2793531 object_orient
object_orient's picture

I read the obit. He seemed like a hell of a guy, despite the Pelosi endorsement. Everyone here has a story that comes out eventually, if you watch for it.

Fri, 09/14/2012 - 01:51 | 2793617 Clashfan
Clashfan's picture

I thought several Tylers repeated, just about two weeks? one week? ago, that no QE was possible, and that only light easing (if any) would be announced, that Ben only had one wad left to shoot, and he would save it for when the market was tanking??

Or did I read that somewhere else? Or misunderstand it?

Thu, 09/13/2012 - 17:48 | 2792220 runthenumbers
runthenumbers's picture

Didn't we learn today that good news is never priced in.

Thu, 09/13/2012 - 18:14 | 2792334 hannah
hannah's picture

QE3 was priced so cnbc says...?! if it was, why did we go up...?

Thu, 09/13/2012 - 19:15 | 2792587 spastic_colon
spastic_colon's picture

buy the rumor....buy the news (with both hands)

Thu, 09/13/2012 - 17:48 | 2792222 Overflow-admin
Overflow-admin's picture

Don't worry, everything will run smoothly with competitive devaluation.

 

/sarc gold/chf all-time high of 1661 ftw

Thu, 09/13/2012 - 17:51 | 2792225 Dr. Gonzo
Dr. Gonzo's picture

So what's the problem? They take title to property with thier dying clown bucks and become everyone's land lord before their currency goes completely tits up. When the money becomes worthless in a couple years they'll own everything and then they issue a new clown buck. How do they lose?  Too easy. How is this not bad for the Fed? It's like stealing candy from a baby. You ever watch any of the programing on American Television? It's all geared towards ignorant retarded adolescent adults in a fluoride coma. They won't even notice. CNBC has already been telling the catatonic public it's all good. It's been the plan all along. 

Thu, 09/13/2012 - 17:53 | 2792246 CrashisOptimistic
CrashisOptimistic's picture

As has been said, what kills all of this is oil.

Clownbucks are clownbucks.  Gold has no value to society.  And so oil is the yardstick and it is getting scarce.

Bernanke is killing far more people than scarcity had to kill.

Thu, 09/13/2012 - 17:56 | 2792259 Nothing To See Here
Nothing To See Here's picture

Gold's value is that it buys oil.

Thu, 09/13/2012 - 21:21 | 2793025 mccoyspace
mccoyspace's picture

It sure lets the Turks buy Iranian oil

Thu, 09/13/2012 - 21:44 | 2793092 new game
new game's picture

also lead and iron to propel.

seriously folks, 9mm at 25/100 rds; say 50k rds = 12000: what will that be worth?

answer: 25,000 as that is what happened while gold doubled-to a fucking tee.

But it has utility i can not explain unless you enjoy shooting da shit...

Thu, 09/13/2012 - 18:37 | 2792427 Hype Alert
Hype Alert's picture

Don't forget, the other clown, the one in the white house, will just read off the teleprompter about releasing oil from the SPR and all will be well.

Thu, 09/13/2012 - 18:54 | 2792492 HungrySeagull
HungrySeagull's picture

no no no no.

 

A little drip from the SPR is going to be absorbed like a spot of spilled gas by a blue rag.

 

And then discarded into the national trash can on top of the discarded ciggie butts...

Fri, 09/14/2012 - 00:39 | 2793545 Squid Vicious
Squid Vicious's picture

already tried that, worked for about 48 hours... not saying they wont try it again, cuz these are "strategic" times for sure...

Thu, 09/13/2012 - 17:51 | 2792237 Nothing To See Here
Nothing To See Here's picture

ZIRP through 2016?  Peak stock market?

Pension funds = timber

Thu, 09/13/2012 - 18:56 | 2792499 HungrySeagull
HungrySeagull's picture

Some years ago our local mill was crying...

 

Now I think tomorrow is the day they sing Hallujah and fire up the gang saw.

 

I am still holding on to what few trees we have left. That means hot water and life when no utilities are left.

Thu, 09/13/2012 - 17:52 | 2792239 gunsmoke011
gunsmoke011's picture

"The Fed will therefore monetize roughly half of the US budget deficit in 2013."

And at some point when it is "Appropriate" - the U.S. government will simply abolish the FED, sieze their assets, and apply them towards the national deficit. Easy Smeezy.

Thu, 09/13/2012 - 17:52 | 2792243 Timmay
Timmay's picture

Wow. Fed will legally own assets worth 24% of US GDP in 2013. How did they manage that?? Hmmm??

The FED is buying the U.S. with the U.S.' own "money".

 

COUP bitches!

Thu, 09/13/2012 - 19:42 | 2792687 Poor Grogman
Poor Grogman's picture

Not to mention destroying the value of what you earn and thus pricing you out of the asset market at the same time.

Serfdom bitchez....

Thu, 09/13/2012 - 19:51 | 2792722 chet
chet's picture

Pretty simple, but still no one gets it.

"Sure I'll buy your assets.  And you give me the power to invent the money with which I'll pay you?  Oh, then I'll give you an excellent price indeed!"

Thu, 09/13/2012 - 17:52 | 2792244 not fat not stupid
not fat not stupid's picture

This all assumes no change in status quo/regional wars/global warming/homeland attacks/nuclear incidents/tsunamis/uprisings/congressional fuck-ups/etc/etc/etc

Thu, 09/13/2012 - 17:52 | 2792245 roadsnbridges
roadsnbridges's picture

Doesn't this assume there is a Fed in the end of 2013?

Thu, 09/13/2012 - 17:54 | 2792249 Need More Cowbell
Need More Cowbell's picture

"Any incremental gains in the stock market will have to come from additional easing over and above what Bernanke just announced." - or incremental gains could come from resolution of fiscal cliff, or better-than-expected earnings, or better housing data, or better unemployment data, or good news out of Europe, or better US econ data of any sort, etc. etc.

Thu, 09/13/2012 - 18:00 | 2792254 socalbeach
socalbeach's picture

I think it's time for the deflationists to admit they were wrong and capitulate.

Thu, 09/13/2012 - 20:39 | 2792294 socalbeach
socalbeach's picture

On the other hand if you want to be stubborn and think your dollars are going to increase in value, keep on holding them.  Thanks for the free money.  The money I'm borrowing at below the inflation rate is mostly yours.

Thu, 09/13/2012 - 18:20 | 2792359 hedgehog9999
hedgehog9999's picture

No, I don't think so. Bernanke has just ensured the big deflation will come. And this time the politicians will hopefully get their act together.

Stock market will start going down soon, if not Tomorrow.

Not so with gold and commmodities. They still have a ways to go......

We are kind of where we were back in late 2007, where TODAMOON was the motto, (subprime was contained, his own fucking words), oil and commodities almost got to the moon, in the process crashing a weak economy (which by the way was not as weak as it is now), this sent the BALTIC DRY INDEX to its lows, (we are already there now)  and setting  up the OIL crash along with all commodities in the summer of 2008........

This fucker could not have chosen a better time to trigger a real depression!!!

Thu, 09/13/2012 - 18:57 | 2792508 HungrySeagull
HungrySeagull's picture

They blew past the moon long ago... the great threat is the NEO's as it whizzes by close to the Earth and Moon.

 

One of those mountains fall to earth, I'll be sitting on the Levee with a smoke, whiskey and a woman.

Thu, 09/13/2012 - 22:02 | 2793157 blunderdog
blunderdog's picture

The only reason this is being done is because Bernanke's still terrified of deflation.  He's trying to hold up the sky.  You think the SKY should capitulate given these odds?

Thu, 09/13/2012 - 17:55 | 2792257 GlomarHabu
GlomarHabu's picture

bernanke and obama need our prayers

Thu, 09/13/2012 - 18:01 | 2792268 roadsnbridges
roadsnbridges's picture

Yes, I pray everyday they die a painful and humiliating death.

 

Crap, that was fast!  Black Escaldes just roared up.

Thu, 09/13/2012 - 18:46 | 2792462 e-man
e-man's picture

+1 Thanks for the laugh, I really needed one today!

Thu, 09/13/2012 - 19:00 | 2792523 HungrySeagull
HungrySeagull's picture

They tend to part traffic like Moses parted the red Sea.

 

I got run over by a Prez motorcade once on I-495. Having to get out of 5 lanes worth of stubborn, onery, tight fisted, foul mouthed commuters until they too beheld the red/blue of the on coming Prez. So they went to both sides right away leaving me in the middle of three lanes with black war trucks and limos blasting by me on both sides.

 

Thankfully the Cider load in the back jingled but did not break in the old glass gallon jars...

 

I think I might still have one or two... pretty good for a drink now that I want one.

Thu, 09/13/2012 - 21:04 | 2792968 Overfed
Overfed's picture

You forgot the <sarc> tag.

Thu, 09/13/2012 - 17:58 | 2792265 Karden
Karden's picture

Osama family will be happy to see higher oil prices. Beloved friend in Russia mr Putin will also welcome the news. Those who do nothing but live on Obama's help will also get some scraps.
But those who produce will get punished with higher input prices and inflationary Tax.
Welcome virtual Economy.

Thu, 09/13/2012 - 18:18 | 2792345 TrustWho
TrustWho's picture

Mr. Putin raised interest rates today. A very smart move as he continues to by gold on dollar weakness. US of A is being outplayed on all fronts.

Thu, 09/13/2012 - 18:42 | 2792441 hedgehog9999
hedgehog9999's picture

And who is the #1 oil producer?  I believe it is Putin with his Petrorubble.

Trouble is they will crash the western world with the upcoming spike in oil, demand is already very low, that's probably why oil did not do much Today...... but the tide of money is coming, that will create the oil spike that will send all comatose economies in the western world tits up setting up a crash that will make 2008 look like a pic nic.

In the mean time Putin and company if they are smart should hedge their oil production at the spiked prices..... Bernanke will end up with garbage MBS in his portfolio.

Thu, 09/13/2012 - 19:02 | 2792529 HungrySeagull
HungrySeagull's picture

And Putin continues to work the Bastion Stragety into a world winning ability to claim everything above the Artic Cicle... alaska included. Add that to his already vast holdings of Timber, minerals and what have you across the USSR...

 

I hate the man but at the same time... I like him too goddamn it.

Thu, 09/13/2012 - 17:58 | 2792266 Snakeeyes
Snakeeyes's picture

What a nightmare! Great charts!

Thu, 09/13/2012 - 17:58 | 2792267 lolmao500
lolmao500's picture

The losses are gonna be epic.

Thu, 09/13/2012 - 18:00 | 2792274 unununium
unununium's picture

Where is Sudden Debt when you need him?

http://www.newyorkfed.org/markets/ambs/ambs_faq.html

"Only fixed-rate agency MBS securities guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae are eligible assets for purchase."

Hahahahahahahahahahahahahahahahahahahahahahahahahahahaaaaaa

Haaaaaaaaaaaaaaaaaaaaaaaaaa

They will only purchase securities guaranteed by Fannie Mae?  The insolvent Fannie Mae who is hooked up to a life support feed from the US Treasury?  The US Treasury who borrows to meet EVERY new obligation?  Borrowing funds which come from .... WAIT FOR IT ..... The Federal Reserve?

What a freaking pathetic joke.

 

Thu, 09/13/2012 - 18:02 | 2792290 roadsnbridges
roadsnbridges's picture

SD took a late vacation to avoid the Plebes.

Thu, 09/13/2012 - 18:48 | 2792467 ZeroAvatar
ZeroAvatar's picture

I'm gonna be trying to avoid the Plebe Smashers. (Large Blue Hummers)

Thu, 09/13/2012 - 19:02 | 2792535 HungrySeagull
HungrySeagull's picture

The same fannie who is walking the long legs with the VA loans too?

Thu, 09/13/2012 - 18:01 | 2792280 jamezelle
jamezelle's picture

So what percentage of GDP growth will the fed be responsible for each quarter in 2013?

Thu, 09/13/2012 - 18:04 | 2792299 roadsnbridges
roadsnbridges's picture

-.5 ^ (no. of quarts)

Thu, 09/13/2012 - 18:01 | 2792281 Downtoolong
Downtoolong's picture

Fed to unwind its balance sheet, if ever

Practically speaking it could never happen in an orderly fashion. That's what's so deceptive about all this bullshit. It's not even short term manipulation of the money markets. It's a permanent one way expansion, and effectively a tax by government entities that we all eventually must pay for. The only way the Fed balance sheet could ever be unwound is in a catastrophic collapse in which all value is destroyed. And, the larger their balance sheet is, the more likely that is to happen.

Thu, 09/13/2012 - 19:07 | 2792556 obejoyful
obejoyful's picture

What you never hear from anyone at the Fed or TV or anyone is how they are going to sell all this shit.  What is going to happen to comercial real estate when they dump a trillion worth of MBS on the market.  For every action there is an opposite reaction it just delayed.

The majority of this generation only thinks of itself.  Not one person or article has addressed how this is going to affect the next generation.  What happens when they sell these treasuries and the interest rates go up, or sell these MBS or all the worthless stock.

 

Thu, 09/13/2012 - 18:02 | 2792283 silverserfer
silverserfer's picture

the private gold vaults at the rothchilds, bilderbergs, rockafellers underground survive the shitstorm you created bunkers must be breathtaking. Lets go find them.

Thu, 09/13/2012 - 19:04 | 2792546 HungrySeagull
HungrySeagull's picture

In time grasshoppers... in time.

 

One day our children's children... aka the Roaches will come out and start crawling all over everything until they do find something good.

Thu, 09/13/2012 - 18:04 | 2792305 neutrinoman
neutrinoman's picture

The right comparison is with total US financial assets, which are around $50-60T (I think). By the end of 2013, the Fed will own about 8% of that, which is large for one actor. It would probably take a good fraction of a decade to unwind it, without doing serious damage.

Of course, by that time, who knows? The whole government-Fed complex might be bankrupt ....

Thu, 09/13/2012 - 18:56 | 2792507 lolmao500
lolmao500's picture

total US financial assets, which are around $50-60T

LOL. I bet it's not even worth 10% of that.

Thu, 09/13/2012 - 19:10 | 2792571 Cthonic
Cthonic's picture

They'll never unwind it.  "Held to maturity" and then forgotten about.

Thu, 09/13/2012 - 18:06 | 2792307 Democratic koolaid
Democratic koolaid's picture

The politics of international Debt

 

 

(http://books.google.ca/books/about/The_Politics_of_international_debt.html?id=Kga0AAAAIAAJ&redir_esc=y)

This Debt is going to used as a tool to Delay and Control Developing/developed Countrys global compeditivness and even indivduals rights.  It's Cashing checks on Behalf of the Future young radicals and anarchists that will proably not tow the line. 

Thu, 09/13/2012 - 18:06 | 2792309 roadsnbridges
roadsnbridges's picture

Who are these stupid people that let these klowns in?

(Denninger, we already know you are one.  No need to raise your hand.)

Thu, 09/13/2012 - 18:08 | 2792316 TrustWho
TrustWho's picture

Tylers, I heard Benanke say today the Fed will hold many of their treasury assets for the duration. In fact, I thought he admitted that the Treasury did not really need to pay the Fed. I was surprised, because this is the essence of Printing Money for Uncle Sam which he continuously denies doing.

If this is true, the Fed's deleveraging plan is a natural process that invovles a little selling of this $4 trillion for normal monetary needs. Wealth destruction matches inflationary money printing is Daddy Bernankes algebraic formula. 

Thu, 09/13/2012 - 18:09 | 2792320 Democratic koolaid
Democratic koolaid's picture

The federal reserve in simplicity is just a Big credit union  that can tap into the hypothedical GDP profits and tax  slush funds of the U.S.of A.

Thu, 09/13/2012 - 18:12 | 2792322 roadsnbridges
roadsnbridges's picture

Let me be absolutely clear:  YOU MATTER TO ME.

 

http://www.whitehouse.gov/schedule/complete/2012-08-14

 

Crap, that was last month.  Here's tomorrow.

 

http://www.whitehouse.gov/schedule/complete/2012-09-14

Thu, 09/13/2012 - 19:09 | 2792563 Cthonic
Cthonic's picture

Nothing scheduled for the rest of the year, either.  Funny!

Thu, 09/13/2012 - 21:04 | 2792972 Yes_Questions
Yes_Questions's picture

 

 

Well, they picked a good for weather here CO.

Thu, 09/13/2012 - 18:12 | 2792325 Big Ben
Big Ben's picture

Santa has his sleigh and Bernanke has his helicopter. Bernanke's helicopter has just taken off and is heading directly for Wall Street.

Thu, 09/13/2012 - 18:12 | 2792328 topspinslicer
topspinslicer's picture

I feel as though things are a little out of balance (like my freedom is no where to be found)

Thu, 09/13/2012 - 18:12 | 2792329 JuliaS
JuliaS's picture

Many goldbugs think the dollar will get slaughtered and they'll be able to emerge as the power class on the other side buying up assets for pennies on the dollar. They seem to forget who the owner of the assets will be - the Fed.

There is no need for gold confiscation. People will be bringing it right back to the bank.

- How much gold do you want for that?

- How much have you got?

Thu, 09/13/2012 - 19:05 | 2792550 HungrySeagull
HungrySeagull's picture

And how many are you willing to kill to hold on to it?

 

Not at 50 silver to one...

 

try 12 to one.. then we'll talk eh?

Thu, 09/13/2012 - 18:13 | 2792331 forteology
forteology's picture

2016 presidential party: The % of GDP is Too Damn High.

 

http://www.rentistoodamnhigh.org/ 

Thu, 09/13/2012 - 18:15 | 2792337 roadsnbridges
roadsnbridges's picture

But golf games are cheap, right?  If it weren't for that truck-butt wife.....

Thu, 09/13/2012 - 18:50 | 2792482 ZeroAvatar
ZeroAvatar's picture

You mean Chewbacca?  Wait'a minute, there's a knock at

Thu, 09/13/2012 - 18:13 | 2792333 PLove
PLove's picture

Vaccines have already suppressed your immune system.

Why would you want another one?

Thu, 09/13/2012 - 18:55 | 2792491 ZeroAvatar
ZeroAvatar's picture

Refuse ALL Vaccines!   (The knock was just some mormons wanting me to vote for 'R')

Thu, 09/13/2012 - 22:08 | 2793172 blunderdog
blunderdog's picture

That's not how a vaccine works.  They stimulate the immune system.  But let's digress.

Thu, 09/13/2012 - 18:14 | 2792335 ludwig_von_mises
ludwig_von_mises's picture

What am i missing.

$4 trillion is equal to $13,300 per person in the USA (every man woman and child in the USA, 300 million people). For a family of four that is $52,000.

If instead of purchasing MBS etc they extended a line of credit DIRECTLY to every family with say net worth of less than $200K of $52,000 at zero interest (what they are effectively giving the Banksters, would this not be infinitely more stimulative? (My guess is that even a fifth of that would be more stimulative in the right hands then what they are doing).

 

Thu, 09/13/2012 - 18:16 | 2792343 roadsnbridges
roadsnbridges's picture

You are missing the illegal portion,  Drives the cost way down.

Thu, 09/13/2012 - 18:25 | 2792379 TrustWho
TrustWho's picture

This is why Bernanke is evil. The Fed's distribution of money goes to the rich oligarchs why he tells the common man he is saving them from the next great depression. The people who stole the wealth going up; also still the money coming down the deleveraging pole.

The oligarchs of Russia and oligarchs of USA maybe different people, but they have the same callous cold greedy and evil souls. Bernanke is their hit man!

Thu, 09/13/2012 - 19:06 | 2792554 HungrySeagull
HungrySeagull's picture

Not that pole... the one suzy rottencrotch is showing off tonight.

Thu, 09/13/2012 - 19:32 | 2792652 TrustWho
TrustWho's picture

...I was thinking of that pole exactly....slick with love juices between the Bankstars and their whore Bernanke! 

Thu, 09/13/2012 - 20:25 | 2792852 Kayman
Kayman's picture

ludwig_von_mises

What are you missing ?  You, sir, are not a member of the club.

Thu, 09/13/2012 - 22:08 | 2793171 new game
new game's picture

The question:What would you do if you could wake up and create money legally?

think long and hard.  this is fucking bullshit.  most people have to work 5-6 fucking hours for one c note.

most likely doing some shit job for a narcissistic looser that got promoted beyond his or her ability.

if only people knew wtf is really going on.  also check out max k's latest vid about jersey(UK) and the est 20+T

stash from ripping everyone off everywhere.  these are the central bankers, and riff from drugs, the whole top of the pile.

caymen, jersey tax free money scheme.  london calling, are you listening?

Thu, 09/13/2012 - 22:13 | 2793193 Nimby
Nimby's picture

If Romney wins, and he has the sense to replace BB with Yours Truly, my stimulus plan will consist of creating a Federal Lottery.  Instead of making pick 6 numbers from 1 to 50, it will be one number between 1 and 10.  Tickets will cost $100 and winners will receive $1MM.  There will be a Federal Winners Tax of 99.9% on all winnings.  Think about all the jobs we can create!  Happy days, indeed!

Thu, 09/13/2012 - 18:15 | 2792338 Pairadimes
Pairadimes's picture

So, if infinite QE is now completely priced in, does that mean we have to start trading on the fundamentals again? Oh, Shit.

Thu, 09/13/2012 - 18:19 | 2792355 Cult_of_Reason
Cult_of_Reason's picture

And BLS will continue to lie about real inflation while Bernake monetizes the debt.

Thu, 09/13/2012 - 18:19 | 2792357 Gloomy
Gloomy's picture

Here's the thing. Anything less than 40 billion/ month will now cause a market crash. Think about that for a minute. Let it sink in. No going backward from Weimar now, the Rubicon has been crossed.

Thu, 09/13/2012 - 18:25 | 2792382 Tyler Durden
Tyler Durden's picture

Correction: anything less than $85 billion becuase the long-term purchases ($45 billion/month) are part of the Flow calculation entering the system since 1-3 Years are ZIRPed.

Thu, 09/13/2012 - 18:30 | 2792397 Yen Cross
Yen Cross's picture

Tyler/ r/u Chineeze?  ( ghost spending) on bridges to nowhere?

Thu, 09/13/2012 - 18:45 | 2792452 ekm
ekm's picture

It basically means that in a typical Pyramid Scheme (Ponzi, Madoff), Newcomers  are always required in order to provide funds for the payout to the previous members of the pyramid.

Since the suckers are retiring and pulling money out, then the FED BECOMES THE NEWCOMER ready to payout the fund.

So, the Fed is the real Sucker or the Last Resort. But, Flow (infinite) devours the Stock (finite). The end point is theoretically the Fed buying and owning all means of production.

We used to call it communism.

Thu, 09/13/2012 - 18:52 | 2792487 Yen Cross
Yen Cross's picture

Tyler knows we know "EKM". I was lurking for " Identity".

Thu, 09/13/2012 - 18:58 | 2792513 ZeroAvatar
ZeroAvatar's picture

$85 billion here, $85 billion there, PRETTY SOON...........................

Thu, 09/13/2012 - 21:14 | 2792996 chump666
chump666's picture

Bring up Dow & S&P charts before and after QEs, note the rallies are getting shorter (duation) and sell offs sharper.  QE3 rally is still ignoring terrible fundamentals in the global ecomomy, China/HK (dollar peg) just got a dose of inflation, and they have been grappling with stagflation.  China is still going to blow. In summary, a crash is still on th cards.

The market is dangerously overbought.

Thu, 09/13/2012 - 18:20 | 2792358 Stuck on Zero
Stuck on Zero's picture

If the Fed ends up purchasing all the mortgages doesn't that make us all renters?

 

Thu, 09/13/2012 - 18:33 | 2792409 semperfi
semperfi's picture

Yet another who has been fooled/deceived by the powerz into thinking they are not renting now - try not paying your property taxes (ie, rent) and see how long you remain in your "owned" property.  (I was once a sucker too - reformed for 6 years now)

Thu, 09/13/2012 - 19:08 | 2792561 HungrySeagull
HungrySeagull's picture

Utitlites cost less than 1/3 rent these days.

 

Taxes each year is a few hundred at most.

 

Gotta get the fuck out of the Coasts silly... come south... they have plenty of something something to lure you Yanks.

Thu, 09/13/2012 - 18:34 | 2792414 Jendrzejczyk
Jendrzejczyk's picture

Renting isn't so bad. No strings tying you down can be good.

Thu, 09/13/2012 - 18:50 | 2792483 semperfi
semperfi's picture

I wouldn't buy a house now so renting is the way I'd go if I was starting over.  

Thu, 09/13/2012 - 18:22 | 2792364 falak pema
falak pema's picture

the race is on for the donkey kong prize; the FED against the ECB. Its like that Ben Hur race, winner takes all. 

Thu, 09/13/2012 - 18:27 | 2792385 phoolish
phoolish's picture

BoJ is in the race too.

Thu, 09/13/2012 - 18:22 | 2792365 Mark123
Mark123's picture

It seems odd....no banks just failed, no twin towers just collapsed, nobody is starving, stock market is going gang-busters, housing and employment are lackluster - but not the end-of-the-world stuff.....and yet.....our central bank has just announced it will create more money and buy financial instruments from the market until the economy is "better".  Wow.

 

Of course, you have to ask yourself, what would happen if they had said "we're done" and stopped buying crap with new money.  How would their puppet government have kept on placating the dull-witted masses? 

Thu, 09/13/2012 - 19:10 | 2792569 HungrySeagull
HungrySeagull's picture

https://www.youtube.com/watch?v=7VG2aJyIFrA

 

THIS will stop the money. All of it.

Thu, 09/13/2012 - 18:23 | 2792370 km4
km4's picture

$40 billion/mo should be going to rebuilding US infrastructure and other productive uses instead of the pockets of the TBTF banksters.

Thu, 09/13/2012 - 18:23 | 2792372 alfred b.
alfred b.'s picture

 

   What the.....4 Trilll.....chump change....plse wake me when you start talking real money!

   ....and thanks for buying physical gold and silver.

 

 

Thu, 09/13/2012 - 18:27 | 2792388 roadsnbridges
roadsnbridges's picture

...and the miners.

Thu, 09/13/2012 - 18:24 | 2792374 roadsnbridges
roadsnbridges's picture

Look at the bright side.

Romski could be elected, and appoint the Bamster to Ambassador to Libya.

Klown could experience necrophilia first butt.

Thu, 09/13/2012 - 18:29 | 2792391 Bogdog
Bogdog's picture

hockey stick, bitchez!

Thu, 09/13/2012 - 18:29 | 2792392 P Rankmug
P Rankmug's picture

Tyler,

Where does the Fed state that Operation Twist will continue after 2012?  That was not mentioned in today's Fed statement.  The $85 billion only lasts through the end of 2012, according to today's Fed statement.

"To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee agreed today to increase policy accommodation by purchasing additional agency mortgage-backed securities at a pace of $40 billion per month. The Committee also will continue through the end of the year its program to extend the average maturity of its holdings of securities as announced in June, and it is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities. These actions, which together will increase the Committee’s holdings of longer-term securities by about $85 billion each month through the end of the year, should put downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative." 

Thu, 09/13/2012 - 19:43 | 2792671 khakuda
khakuda's picture

I read the Fed to say 85 bil through year end, then at least 40 bil monthly after that. Still completely fucked, but 480 bil per year minimum money printing, not twice that yet. I guess I'm not understanding why the implied continuation of twist. Related to zirp somehow?

Thu, 09/13/2012 - 19:53 | 2792729 Schmuck Raker
Schmuck Raker's picture

I hope Tyler responds, as that is a good question you raise.

Thu, 09/13/2012 - 21:00 | 2792962 Pareto
Pareto's picture

I'm not Tyler, but....

The only way that Bernanke can sustain the wealth effect from a QE, is by more QE.  This is because if, by the end of the year, he stops, the bond ponzi will quickly unwind as rates start to rise.  As rates rise assets prices EVERYWHERE will fall and we will once again learn that THERE IS NO FREE LUNCH.  Remember how 2010/11 was shaping up for a retest of the 2008/09 lows until Jacksonhole, which, such a retest would have at least been consistent with GDP and unemployment measures?  Now, we just have further to fall to get there is all.  So. No biggy.

Thu, 09/13/2012 - 21:44 | 2793080 Schmuck Raker
Schmuck Raker's picture

Thanks Pareto.

It's all about the flow

...and Tyler here:comment-2792382

So, $85B/month after 2012 (though not stated/admited by the Fed) is what is implied they will have to do.

This isn't QE3, it's "Speed III".

Thu, 09/13/2012 - 18:29 | 2792393 drivenZ
drivenZ's picture

"The Fed's balance sheet will increase from just over $2.8 trillion currently, to $4 trillion"

it's possible that it explodes that quickly but you aren't taking into account that the 3-6yr paper will eventually mature into the 1-3yr category. So for purposes of this 2014 discussion you'd probably want to see how much 3-5yr paper they have also. 

 

"without sterilized as it will no longer have short-term bonds to sell. "

possibly...They could also take a page out of the ECB's playbook and do repo's and term deposits to sterilize. 

Thu, 09/13/2012 - 18:39 | 2792434 Democratic koolaid
Democratic koolaid's picture

QE will disolve the American white middle class into the Ghetto aka the equivilant of what the Brazlian middle class are A tossed salad. This helps bring places like India and Chinas higher on the pecking order, like A African with Cell phones does.  They are re-distributing wealth into the world comune in hopes of making everything more rosey . 

Thu, 09/13/2012 - 21:42 | 2793084 Nimby
Nimby's picture

They aren't re-distributing it; they are destroying it - and that "middle class" along with it.  All they need are plebs, middle classers epect shiny things, plebs are happy to eat once a day.

Thu, 09/13/2012 - 18:46 | 2792459 El
El's picture

We live in very interesting times. Read that franchisers are saying their profits will be cut in half by Obamacare. That can't be good. The end of the world as we know it = no McDonald's.

 

http://washingtonexaminer.com/franchisors-warn-obamacare-will-halve-prof...

Thu, 09/13/2012 - 22:12 | 2793188 blunderdog
blunderdog's picture

ZOMG!  If it kills McDonald's, ObamaCare will be one of the greatest boons to humanity of the decade.  Bigger than a cure for cancer.

I'd be wary to hold out such hope, though...McDonald's is better than the cockroach.

Thu, 09/13/2012 - 23:17 | 2793190 blunderdog
blunderdog's picture

double post

Thu, 09/13/2012 - 18:49 | 2792477 Yen Cross
Yen Cross's picture

 as Clint Eastwood, so "Succinctly said" empty chairs aside.  " I tried being reasonable, I didn't like it!

Thu, 09/13/2012 - 18:49 | 2792478 johny2
johny2's picture

I would say it is not priced in at all, everyone is going to be a millionaire.

Thu, 09/13/2012 - 20:01 | 2792762 helping_friendl...
helping_friendly_book's picture

I saw that skit on SNL w/ Dan Akroyd portraying Jimmy Carter asking "everyone will be a millionaire!" with all the inflation. Guess what? I still am not a millionaire. That was 1978? 

BB will get the sack and a new, painful, regime of austerity will begin after the election. The new FRBNY FOMC will start soaking up that gravy and you better hope you have a year, or two's, expenses banked when the SnP goes to 444.

Don' hold your breath waiting for the Weimer Republic replay here. I don't think it will happen.

Thu, 09/13/2012 - 23:18 | 2793392 blunderdog
blunderdog's picture

"Austerity" is fiscal policy.  The Fedhead's gig is monetary policy.  They can't be substituted for each other, 'cause bankrupt is bankrupt and insolvent is insolvent.

Thu, 09/13/2012 - 18:57 | 2792509 headless blogger
headless blogger's picture

So does this change anything about Silver, or is it still set to hit $100 by Jan 2013?

Thu, 09/13/2012 - 19:01 | 2792524 Mark123
Mark123's picture

A brilliant comment from another article I was reading:

 

"the only cheap asset right now is: money ...every time this has been the case in history it has ended in bubble and tears"

 

interesting concept. What a crazy world this is.

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