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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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.

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?

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.

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.

rehypothecator's picture

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

NotApplicable's picture

Nah, I saw it.

Somebody just needs a new battery in their detector.

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??

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

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.


buzzsaw99's picture

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

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!

holdbuysell's picture

Were you doing extensive target practice in early 09?

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....

blunderdog's picture

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

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.

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.

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!

blunderdog's picture

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

Bay of Pigs's picture

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

FUBAR is more like it.

Overflow-admin's picture

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


Rainman's picture

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

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."
Dr. Engali's picture

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

mccoyspace's picture

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

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. 

kito's picture

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

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.

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..............

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.

palmereldritch's picture

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

Squid Vicious's picture

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

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. . .

ThankYouSirMayIHaveAnother's picture

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

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?

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. 

Jendrzejczyk's picture

Would MBS's be considered "real assets"?

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.

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... 

Bunga Bunga's picture

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

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?

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

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.

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.

fonzannoon's picture

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

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.