the Fed gave us another sneak peak at its balance sheet this morning

Discussion in 'Economy' started by GigiBowman, Nov 8, 2008.

  1. GigiBowman

    GigiBowman Active Member

    Oct 21, 2008
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    This today from a private investment newsletter I subscribe to:

    .....the Fed gave us another sneak peak at its balance sheet this morning.


    Can you say, $2,000,000,000,000.00?

    Ben Bernanke’s balance sheet expanded to a record $2 trillion this week -- $2.058 trillion, if those billions even matter any more. That’s more than twice its size at this time last year.

    The Fed’s loan portfolio is so bloated, we hardly know where to begin: Average DAILY bank borrowing from the Fed exceeded $359 billion last week… the Fed’s Commercial Paper Funding Facility has nearly doubled, and now holds $243 billion in “no one else will buy it” cooperate debt… primary dealers and brokers are running a $71 billion tab… AIG still owes $81 billion… it just keeps going and going. Over a third of the balance sheet is made up of some sort of bank loan or toxic asset.

    Who’s paying for it? The U.S. Treasury has set up a supplementary funding account with the Fed, which is fueled by T-bill sales. That fund now exceeds $558 billion.

    "I would not be surprised” said Dallas Fed President Richard Fisher, “to see [the Fed’s balance sheet] aggregate to $3 the time we get to the new year." That would be by January… or another trillion bucks in the next two months.
  2. Paulie

    Paulie Platinum Member

    May 19, 2007
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    Don't worry. Zoomie says the Fed affects nothing in our economy. They could conceivably inflate their balance sheet to 100 QUADRILLION, and it won't even matter! It's all just one big joke!
  3. gonegolfin

    gonegolfin Member

    Jul 8, 2005
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    Austin, TX
    Just do not be fooled into thinking that all of this increase in the balance sheet is inflationary (as many have been). Most of it is not as most of the balance sheet expansion has been fueled by the TSPF and the expansion of other holdings in the Treasury General Account (total of about $607 billion). But no doubt, the Fed has been engaging in quantitative easing over the last couple of months (not so beforehand).

    The Fed loan to AIG actually declined over the last week (to $81.215 billion). The reason? AIG is playing interest rate arbitrage and the result is the Fed loaning out more money through its Commercial Paper Funding Facility (CPFF).

    AIG was paying 8.5% plus the three-month LIBOR rate for the original $85 billion loan. Three-month LIBOR has fallen in recent weeks and is now below 2.5%. But you are still talking about an 11% loan. AIG is making use of the Commercial Paper Funding Facility (CPFF) offered by the Fed to borrow money at below 4% interest to pay off the more expensive $85 billion loan.

    And when you add in holdings of the Treasury General Account, this comes to the approximately $607 billion I mentioned above.

    Certainly. We know that the Treasury will attempt to auction another $500 billion in the next month. This will be part of the TSPF ... the fueling mechanism to expand the Fed's balance sheet without quantitative easing.

    Last edited: Nov 8, 2008

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