Market Now Pricing In $770 Billion Increase In Fed Balance Sheet

Tyler Durden's picture

As we have pointed out previously, the primary if not only driver of relative risk returns (because in a world of relative fiat value destruction, it is all relative, except for gold which is revalued relative to all on a pro rata basis), will be who of the big two - the Fed and the ECB - can print more. And up until now, at least since the end of December when the market "suddenly" realized that the ECB's balance sheet has soared to unseen records, the consensus was that it was the ECB that would be the primary source of easing. Especially when considering that there is another ~€500 billion LTRO due on February 29. Yet today's rapid reversal in the EURUSD, driven by Bernanke's uber-dovish comments suggest that something has changed and that the Fed is now expected to ease substantially. How much? For that we look to the latest balance sheet cross-correlation, where if we go by simple correlation, the market is now pricing in (based on the EURUSD cross ratio) that the relationship of the two balance sheets will rise from a multi year low of 1.08 as of a few days ago to 1.15, at least based on the rapid move in the EURUSD higher as can be seen in the chart below. Indicatively, the actual value of the two balance sheets is €2.706 trillion for the ECB and $2.92 trillion for the Fed (or a 1.08 ratio). So now that the EURUSD has risen as high as it has, it implies that the pro forma "priced in" ratio is about 1.15. But wait: one should also factor in the fact that the ECB's balance sheet will rise by at least another €500 billion in just over a month, which will bring the ECB's balance sheet to €3.2 trillion. Which means that to retain the 1.15 cross balance sheet relationship, the Fed's own balance sheet will have to rise to $3,687 billion, or a whopping $767 billion increase!

Naturally, that's a simple heuristic based on only what the EURUSD pair is implying. Of course, this is not a scientific way of predicting where Bernanke will go, but that is at least what the market seems to be telling us. If the LTRO is much bigger, such as the €1 trillion suggested by CLSA, then the ratio changes, but €500 billion is probably far more realistic at this point.

So at the end of the day, the balance sheets of the world's two biggest central banks will increase by about €500 billion for the ECB and ~$770 for the Fed and $655 billion for the ECB.

Incidentally, this analysis assumes all else equal which, with Greece on the verge of default and Portugal potentially in its footsteps, isn't... 

Thus our question is: gold is not on its way to $2000 yet why again?

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tmosley's picture

Where exactly did I "ask" for you?

Get over yourself, and this homoerotic thing you seem to have for me.

disabledvet's picture

we do need more girls around here. tis true....

Eireann go Brach's picture

Trav you are fucking pathetic! Go make out with your mum and go back in the basement!

Calmyourself's picture

Let me get this straight, your a lawyer and you just wrote that, for what purpose? Holy hell, I hope your not a criminal defense lawyer..

Kaiser Sousa's picture

So if u bought it when it was $10 an oz. It's all bad right?????
Dude, shut the fuck up please......


US gold production gains 2.6%, silver declines 8.7% in 2011


Right cause there's just SO much extra Silver out there,, the price just can't wait to drop to $18 per oz?  Stupid statements like that will simply get you labeled a COCKSUCKER!

Stax Edwards's picture

I don't doubt if you are correct, I really don't know one way or the other.  Many of my comments regarding silver are assuming that much of the hearsay found here at ZH is correct.  One thing I could never figure out is if the biggest silver cheerleader is trying to convince producers to hold back supply to drive prices higher (I don't know this to be true but it has been stated here repeatedly by our silver guys) that might be a sign that a commodity price is being "cornered" and that holding off on purchases might be a good idea.  That being said I promise I too will buy some silver next time it drops below 25 bucks an oz.  Hell why not get a monster box, just cuz I wanna be in the club too.

I do want to draw attention to the fact that you state US production declines 8.7%.

With some risk of pissing our silver aficionados off, I present the following data (up to 2009).  I have seen similar in chart form (growing annual production) but this came up in my google search first.

Emphasis on the far right column.  Is this accurate?



trav7777's picture

that's UNITED STATES production, idiot...we're a minor player in both markets.

Production peaked for both in the US a LONG time ago.

disabledvet's picture

alright, phucker. Gensler vs Fleckenstein. Who's your money on? I'd go with Fleckenstein...unfortunately we all now know Gensler cheats....

Banjo's picture



Silver hasn’t even regained support at 35 dollars, EVEN after such a dovish FOMC  – that is a complete JOKE. **LOL**

Silver supply is literally SURGING with these inflated prices. Producers can’t wait to off-load their expensive silver into the greedy hands of redneck silverbugs. It’s only a matter of time before silver reaches FAIR VALUE at $18/oz, much to the dismay of redneck doomers and conspiracy theorist lunatics.


I'll take silver and gold over wood pulp, turned into parchment and inked with a central planning committee numbers.

Recent average Cumulative price of silver

2009 $14.67

2010 $20.19

2011 $35.12


So is the the central planner in you dictating the "fair" price at $18.00? Why don't you go open a mine and sell it at your centrally planned price rather than at marke price. After all it's only $5.00 per oz to dig out of the ground right?


You are an epizoon in economic evolution, where you can only exist by extracting your sustinence in your centrally planned dogmatic outlook and foisting this by BRUTE FORCE on others. Free market forces would eradicate your worthless life draining existance.


VisualCSharp's picture

If you take silver and gold over wood pulp, why do you then list the prices of silver in wood pulp? By doing so you are admitting an equivalency between the two. You can't have it both ways. Either you are happy with some supply of silver because you are confident in its inherent value (hint: things in nature have no value except what man ascribes) or Federal Reserve Notes are how you actually measure your happiness.

Banjo's picture

Currency is but the means of determining exchange values between all goods and services. There is nothing inherintly wrong or bad in the concept of currency, quite the contrary this is a major advance in human economic evolution.


A free market driven currency would be superior to a centrally planned politburo driven system of finding relative exchanges between goods and services. If you read the history of metallic currency, you will find central planners attempting to FIX the price of gold or silver either in relation to each other or in relation to units of currency in circulation caused strains in the sysems of exchange. Peter L. Bernstein. The Power of Gold, the history of an obsession. NOTE: This author looks unfavorably on gold silver as a means of currency modulation.


The dollars I quoted and contrasted exist, that is self evident. Similarly silver, gold, oil, wheat, taxi rides, movies, dentist, car wash, retaurant and other commodities, goods and services also exist.


The quotation of cumulative silver prices juxtaposed against centrally planned wood pulp YES is an equivalent. Just as if I quoted silver prices against teddy bears, haircuts or licorice would be an equivalent. Do you understand? I am not denying the existance of paper money as one way of determining exchanges.


The equvalence shows the relationship over time between the two things being compared. If you understand this then you will understand why I choose (at this time not necessarily forever) to hold gold and silver over centrally planned wood pulp and digitised fiat currency. Below I will create some tables of equivalent values that might tease out the meaning of my example more clearly


Year     -- 5% Dollar Holing   -- Dollar eqivalent Silver 1oz

2009    $14.00                     $14            

2010    $14.70                     $20.19       

2011    $15.44                     $35.12


Stated another way

Year   --Unit silver 1oz    -- One Dollar eqivalent YOY change

2009   1                        1

2010   1                        1.4421 (loss of 44.21% dollar value)

2011   1                        1.7395 (loss of 73.95% dollar value)


All that is now required is to add a third and other colums with big macs, taxi rides, teddy bears etc and work out the relative values of exchange, between holding dollars over silver and indeed these items in relation to each other.


My contention is that at this juncture it is superior to hold silver over CENTRALLY PLANNED FIAT ENFORCED paper and digitised currency. However if YOU choose to hold these centrally planned dollars in favor of the commodity. I say simply one thing.


Good luck. You may in fact over time end up ahead on the basis of relative exchanges. I do not believe this will be true. Realise also that equivalence is not "the same" :)


One final thing I will add is that my belief is that everything in nature has intrinsic value. It is man that attempts to attach a price based on his current understanding as the value of a thing. Unless you are omniscient how do you know the value of oil or any natural commodity tomorrow?


For example 500 years ago oil may have had limited human price value. Natures intrinsic value in that oil was always present just not realised. Clean water, arable unpolluted land, fresh air, forest all have some natural intrinsic value. To state that some element has no natural value is to make a statement that you are equivalent to a god as you know the future and that element can be removed for all time as it serves no purpose.


How can anyone know what any natural element is doing as part of the overall system we habitate, and the treasures that this element might hold? The hubris express is monumental and large part why our intelligence combined with fear and greed, could lead to our demise as a species on this planet. Wisdom is not lacking it's is a difficult proposition to sell in the face of inane IQ draining commentary such as your feeble attempt of understanding of money and nature. Imbecillic would perhaps be the closest succinct summation of your contribution today.








Al Gorerhythm's picture

Been here 2 years aand 7 weeks. In that time I have read some pretty dumb statements but this ranks on par with the dumbest. Exceptional, in line for MOY award (and yes Trav, you, VCSharp and MDB have drawn eyeballs, but having drawn them to your printed thoughts, it is impossible to undo and you are stuck on record as being either shallow or dumb as dogshit).

disabledvet's picture

which one's? "the one's"?? "the twenty's"? "the hundreds"?
man, i gotta learn to play the ukele.

Johnny Yuma's picture

OneDollarBonus_, you should just stop posting on this site. You need to learn how to read a chart, it may help you avoid to look like such an amateur... 

MassDecep's picture


As long as you hold the GLD and the SLV, they have almost complete control over Silver and Gold. Hey MDB do you really think the price of these PM's are supply and demand? I hold GLD and SLV just to get basement bargain prices on the physical, LOL...

We need Sheeple like MDB to continue spewing the rhetoric so we can store up supplies at a bargain price. Do you think the custodians of these accounts are on the up and up? LOL


Bansters-in-my- feces's picture

Let me start by saying ,you make me fucking puke....
You sack of shit.
You know fucking well that silver is "managed" as is gold.
Fuck off and die,douchebag

GubbermintWorker's picture

Really? Well, I sure am glad that my DCA is a lot less than $18/ounce. Guess you were a little late if that happens, eh? But, dumb ass, I don't think you're going to see $18 an ounce silver again.

Boilermaker's picture

SD1, there is no 'and then what'.  You keep trying to apply old rules and laws to a totally different game.  They'll change, re-write, and create laws and rules as they go to perpetuate it.  What will it look like?  Hell, I don't know.  But, believing that there will be some sort of correction back to normalcy is delusional (albeit noble).

They've already crossed the barriers of pushing the limits.  The limits were breached long ago.  They have NO CHOICE but to simply double, triple, quadruple, quintuple, or whatever down over and over and over.

I have something else to tell you, the bull market wasn't real either.  Everything since the gold standard was erased in the 70s has been nothing more than a sham.  The sham must continue.  The sham will continue.  And, it will be more extreme, bizarre, ruthless, and horribly 'unfair' as it goes.

I'll be the first to pick up a pitchfork and torch but, come on, they can pull this bullshit for probably another decade.  Who the hell is going to stop them?  Why would they?

SheepDog-One's picture

I dont buy the normalcy bias premise that 'this is what theyre just going to keep doing on and on' at all. Something else big is being planned for and set up, and we dont know what it is. I guarantee when it happens one morning everyone will be here saying 'WOW I didnt see that one coming'.

trav7777's picture

there's nothing PLANNED DUDE.  Figure that out.  NOBODY IS IN CHARGE.

There are no potent directors; it's why that is the name of a fallacy!

Make as much as you can and get off the train.  Who knows what the future holds but it isn't going to be better than today.  You're warned.

kito's picture

based on your future, what does one hold to protect ones assets after getting off the train?

LawsofPhysics's picture

The same thing you would want when getting off the train in any other lawless society.  Lawyers, guns and money.

kito's picture

lawyers in a lawless society?

tmosley's picture

Of course.  We've got plenty of lawyers, don't we?

Lawyers are the ones that allow the rich to get around the rules that "are only meant for the little people".

kito's picture

last i checked this country is choc full of attorneys and plenty of laws to feed off...sense the correlation there tmos?

tmosley's picture

Plenty of laws, and yet we are lawless.

Like being adrift in the middle of the ocean.  Laws, laws everywhere, but no rule of law to be found.

Moe Howard's picture

Plenty of laws for you the peasant or piss ant. Of course, none of the laws apply to "them" because there is no controlling legal authority. Like having a President that is not a Natural born citizen. So what? WTF are you, the pissant, going to do about it?

Like you steal $5 from walmart and the black suited cops in tactical gear will beat you bloody and lock you up for a year, take your kids away, and take your car and home. Joo bank CEO robs trillions, gets fined 1.1 million, and does not admint guilt.

That's called a lawless society. Plenty of laws, just not for them.

Stax Edwards's picture

+1 Greenie

This is one of your better comments Tmos.

GoinFawr's picture

haha! Save that one Tmos!

SAT 800's picture

Silver. For Real. I'm serious. Been serious for twenty years. All my real savings that are going to the grandchildren are in bullion. It's real money.

VisualCSharp's picture

Only as real as your fellow man believes. If I said "fingernail clippings are money!" then I'd be crazy... unless a large number of other people agreed. Think a bit deeper.

GoinFawr's picture

No. Like fiat currencies you'd have to force people under threat of violence to use fingernail clippings for trade. The PTB wouldn't like it at all anyway: everyone has access to fingernail clippings.

IMO, you're the one who needs to have a good think or two.

Try starting here,

If no one was pointing a gun at your head, which would you value more highly:

a) An incredibly useful item that you know for a fact that someone had to work to procure


b) A bit of paper that says someone, sometime, might have done, or might do, some work at some point, unless they happened to have access to a printing press paid for by you, in which case they got it for less than nothing.


Al Gorerhythm's picture

RE my earlier post stating that your earlier comment was the dumbest I'd read in a long time........ I was mistaken. You just topped it. 

Take your own advice and do some reasearch so that you can think deeper. Answer this question: What is money?

Follow up by answering the next: What are the 5 properties of money? (ie. What things must be able to do for users, for it to be deemed money? Not currency, money. There is a distinction.)

Don't take too long now, you are being left behind.


SheepDog-One's picture

Youve got to be on crack to believe the events have just unfolded totaly unscripted and day to day...its all been planned, the 'collapse' of 2008 was a total scam to scare everyone into beginning the monetization of the debt, plain and simple its ALL planned and youre an idiot if you actually believe theyre just flying by the seat of their pants day after day.

tmosley's picture

Put a large number of individuals in a bad system and evil emerges.  Evil far greater than was the intent of any one individual within the system, even if individuals try to manage the system.

Read up on the Stanford Prison Experiment, specifically Zimbardo's role as warden.

This is the inevitable result of a system based on ever more violation of natural rights.

SAT 800's picture

Of course this is correct. Human brains contain a story module that is forever occupied trying to make a story that fits whatever inputs it has; but there isn't any story; "the Powers", who are almost entirely powerless, are just winging it from week to week. They are often surprised at the result of their acouncements, etc. There's no plan.

SheepDog-One's picture

Youre delusional. Your mind is the one making events fit into 'normalcy bias' and believing its all just reacting to problems no one saw coming at all, much less planned....delusion.

trav7777's picture

no, you are the delusional...paranoid too.

You need to look up normalcy bias because it doesn't gel with your usage of it

tmosley's picture

You must read off of your psych evaluation to find insults for the fine people here.

How pathetic.

KickIce's picture

It's all planned.  Fiat vs fiat yields a relative strength measure for currencies and allows them to play one against the other and print to infinity, it's the only thing holding up the ponzi.

Slartebartfast's picture

Sounds like a central planner cracking the bullwhip.  Hopelessly.  Pathetically.

Really kid, you ought to spend more time on your XBox.  You can't make money at it, but at least it doesn't rot your soul like working for The Morgue does.

SheepDog-One's picture

There is no 'and then what'? Well speaking of 'market realities', theres only 1 reason for a pump and thats the ensuing dump. 'The sham will continue....the sham must continue'....BAH nonsense. People are all normalcy bias and cognitive dissonance today, Stockholm Syndrome set in hard...everyone having sympathy and admiration for their captors.

Anyone who just thinks this goes on and buying into it thinking theyre on the side of avg joe retail will wake real sad one morning.

SheepDog-One's picture

OH and btw where did I ever say 'theres going to be some kind of correction to 'normalcy'? What?

Seems youre reading things into what Im saying that arent there...this has all been set up, monetizing the debt, and theres not much more of that left to do. 

Just watch out for the big false flag event that wipes everything out from left field one morning is all Im saying.

disabledvet's picture

Where? I say "Newt Gingrich polling strong" is a big deal. Why would anyone (other than the media and Newt himself of course) find that fascinating?

slaughterer's picture

Sorry, the Bernanke was about as perma-dovish today as he was at the last news conference--using some of the same exact phrases from the past playbook.  Did we get QE3 in the meantime?   All we got were the usual "we are monitoring the situation" "if conditions change, we will discuss additional asset purchases" "we have additional tools in our toolbox"  promises, not meant to be acted upon.  I fail to see the need for the QE X hype cycle with this degree of blatant MOPE.   In addition, Bill Gross will only talk his book, loaded as it is with tons of MBSs he was hoping to dump on the Fed, and now cannot.    One Black Swan of 2012 will be the firing of Bill Gross and the ascension of Mohammed El Erian to the sole throne of PIMCO--the Allianz boys have had enough of Bill.  

X. Kurt OSis's picture

Telegraphing rates is the functional (and politically more palatable) equivalent of QE3.  If you read this post, this is QE3 to the tune of roughly $767,000,000,000.00.  (I like actually writing the zeros.  It makes it look so much more rediculous).

If we add explicit policy rates to the policy equivalent of QE1, 2, 2.5, and now 3, I reckon we end up with an implied policy rate of approximately -7%.  The Taylor Rule would imply a policy rate of about 0.50% so that puts us 7.5% below the Taylor Rule policy rate (back of the envelope of course).

All of that to prop up a 2 handle on GDP growth.  Most of us agree we are doomed.  We are inching closer to the conclusion every minute.  Any day now.

slaughterer's picture

I understand what you are saying X. Kurt OSis, but I retain my inviolable right to short this bullshit news event.  Implied policy rates notwithstanding no asset pruchase program was announced today, and will not with SPX above 1300.  I am now a card carrying member of the Janjuah bear army again after today"s ridiculous sycophantic market reaction to the big Other with a cold and nervous disorder (BB).