Bernanke's legacy - over $4,000,000,000,000 Fed balance sheet!

[devil21]

Yellen is now officially Fed Chair.

http://www.cnsnews.com/news/article/...-4102138000000

[DFF]

4 trillion is an astronomical sum - but I bet there's way more off-balance.

Wouldn't surprise me if the Fed's true balance sheet was 20 trillion plus.

[Zippyjuan]

How do you arrive at your $20 trillion figure?

[Danke]

Submitted by Simon Black of Sovereign Man blog,

First of all, a very Happy New Year to our many Chinese readers.

According to the ancient Zodiac, today we are shedding the coils of the year of the Snake in favor of the Horse.

Given this symbology, it is perhaps a very small irony that today is also the final day in office for Ben Bernanke, chairman of the US Federal Reserve. Let’s review the statistics:

1) When Mr. Bernanke took office in 2006, the Fed had $834.6 billion in assets, the vast majority of which were US Treasuries.

As of Wednesday, Mr. Bernanke’s Fed now counts $4.1 trillion in assets. And the balance sheet is stuffed full of mortgage debt ‘guaranteed’ by insolvent government agencies.

2) When Mr. Bernanke took office, the Fed’s capital ratio (net equity divided by total assets) was 3.22%.

This capital ratio is a hugely important number in banking that represents a sort of ‘margin of safety’. In a severe crisis situation, banks with a higher capital ratio are able to withstand major financial shocks.

Candidly, 3.22% is not high; this means that the Fed would effectively be rendered insolvent if its assets lost more than 3.22% of their value. So the Fed that Mr. Bernanke inherited was not exceptionally healthy.

But today, Mr. Bernanke leaves office with the balance sheet in far worse condition. The Fed’s capital ratio is just 1.34%. And it’s deteriorating rapidly.

Three years ago, the Fed’s capital ratio was 2.17%. A year ago it was 1.82%. Six months ago it was 1.54%. And now today just 1.34%. It doesn’t take a rocket scientist (or a PhD in economics) to see how quickly this is unraveling.

The Fed now has a razor thin margin of safety to guarantee a bloated balance sheet crammed full of questionable assets. This is not exactly the height of responsible stewardship.

Has it helped? I suppose that depends on whom you ask.

3) When Mr. Bernanke took office, the Dow Jones Industrial Average stood at 10,954, and the US government could borrow money for ten years at 4.57%.

Today the Dow is at 15,569, and the 10-year note is 2.65%.

So this has been a pretty good run for folks who have thrown money in the stock market or have heavily indebted themselves.

Yet over 50% of Americans don’t own a single share of stocks. And as of 2010, 10% of Americans own 81% of all stocks.

Then there’s the Federal government, which has been able to pass off trillions of dollars of debt to a willing central banker, as well as generate tax revenue from all the stock investors’ capital gains.

4) Most folks, however, have seen a different side of the Fed’s expansion. The FAO food price index, for example, has increased from 122 to 207, and the labor force participation rate declined to its lowest level in decades under Mr. Bernake’s tenure.

It’s fairly clear if you look at the data objectively that Mr. Bernanke’s policies have left the Fed (and consequently the global financial system) in far more precarious condition than when he started, yet disproportionately benefited the US government and small percentage of society at the expense of everyone else.

This is not to say that Mr. Bernanke is some evil mastermind bent on nefarious ends.

When I listened to him explain his decision-making process at a dinner in Washington a few months ago, it became clear that he is very well intentioned and honestly believes that his policies help.

Unfortunately the road to ruin is almost always paved with good intentions.

http://www.zerohedge.com/news/2014-0...eign-4-numbers

[DFF]

How do you arrive at your $20 trillion figure?

Pure speculation given the enormity of the crash in 2008 and the need for the Fed to basically bail out the entire world and then do QE for eternity and then some.

[oyarde]

I would guess it is more than reported.

[Zippyjuan]

Let's do some quick numbers. US debt was about $10 trillion in 2008 and up to $16 trillion now. If the Fed bought every bit of debt the US issued in that time, the most they could have is $6 trillion.

They also own mortgage backed securities. According to Wiki, the total value of all mortgage backed securities is $8.5 trillion. http://en.wikipedia.org/wiki/Mortgage-backed_security

Market size and liquidity[edit]

As of the second quarter of 2011, there was about $13.7 trillion in total outstanding US mortgage debt.[42] There were about $8.5 trillion in total US mortgage-related securities.[43] About $7 trillion of that was securitized or guaranteed by government-sponsored enterprises or government agencies, the remaining $1.5 trillion being pooled by private mortgage conduits.[42]

So if the Fed owned every single mortgage backed security issued, they would have $8.5 trillion worth and if they bought every dollar of US debt issued since 2008, that would add $6 trillion. A lot ($14.5 trillion) but not $20 trillion. Heck, from where they used to be, $4 trillion is a lot. Prior to the crisis, their holdings were running just under $1 trillion.

http://commons.wikimedia.org/wiki/Fi...heet_total.png

According to their financial statements (which are audited annually), the Fed has $2.2 trillion in US Treasuries and $1.5 trillion in Mortgage Backed Securities. http://www.federalreserve.gov/releases/h41/current/ Other holdings push their grand total of assets to $4.058 trillion. (figures for January 30th, 2014).

[Carson]

I would guess even more than that.

I'm thinking our nations debt is only a fraction of the debt on the books to the fed. I'm pretty sure more people are bellying up to their cash windows than just our politicians.

They were sending money outside of the country also.

They seem pretty much a loan wolf accountable to no one. Lending their nothing and taking anything as collateral. It's a rigged game where the house always wins.

If you could counterfeit the money supply how many times would you have to counterfeit the entire money supply over and over until you owned everything?

By my count they have now exceeded 30 times what the supply was when we veered off of a gold standard. Hey but who's counting.


If you are going to count; Whats your share of the National Debt if your one of the few still working?

[Zippyjuan]

They were sending money outside of the country also.

To who?

[Carson]

To who?

I'm pretty sure you saw this one before.

I'm sort of figuring this is one of those tip of the iceberg type things.

The first top-to-bottom audit of the Federal Reserve uncovered eye-popping new details about how the U.S. provided a whopping $16 trillion in secret loans to bail out American and foreign banks and businesses during the worst economic crisis since the Great Depression. An amendment by Sen. Bernie Sanders to the Wall Street reform law passed one year ago this week directed the Government Accountability Office to conduct the study. "As a result of this audit, we now know that the Federal Reserve provided more than $16 trillion in total financial assistance to some of the largest financial institutions and corporations in the United States and throughout the world," said Sanders. "This is a clear case of socialism for the rich and rugged, you're-on-your-own individualism for everyone else."

http://www.sanders.senate.gov/newsro.../the-fed-audit

[Zippyjuan]

The article was misleading- both on who got loans and how much they were. On the amounts of the loans- the loans were overnight. One day. If a bank kept a loan longer, it was counted as a new loan every day. Bank takes out $1 billion. If they kept it for a month, it counted not as $1 billion in loans but as $30 billion in loans. Even though they only had $1 billion out. The "real" total of money lent was closer to $2 trillion. The peak amount out at one time was $1.2 trillion.
http://www.bloomberg.com/news/2011-0...ret-loans.html

The $1.2 trillion figure represents the peak outstanding balance on these loans, not the total amount of all the loans. On December 5, 2008 the "too big to fail" banks owed this much money to the Federal Reserve. Many of them could not pay these short-term loans back right away and had to keep rolling them over time after time. Each time a short-term loan got rolled over that represented a new loan.

Second, the "loans to foreign banks". If say Bank Swiss had branches in the US, those branches were able to borrow money from the Fed. The money was not lent to or through Switzerland but only the local branch. Like all banks, they had to provide collateral (usually securities) for the loans. It went to foreign owned bank branches here in the US- not foreign located banks.

[Carson]

As for misleading...

When I said,

"By my count they have now exceeded 30 times what the supply was when we veered off of a gold standard. Hey but who's counting."

That could be misleading. I do figure with a stagnant amount of stuff you could recreate the inflation we are seeing by increasing the money supply over thirty times.

[devil21]

Has there ever been a thread on the Fed that Zippy doesn't post in? With pretty bank provided graphs?

[Seraphim]

US money markets are not the only ones The Fed manages/manipulates/influences.

Part of the 2008 bailout was The Fed bailing out FOREIGN banks and FOREIGN Central banks - they've admitted this and told Congress to go fk themselves over auditing where the money went and how much of it was lent out.

The Fed is trying to prop up most of Europe and Japan as well.

Let's do some quick numbers. US debt was about $10 trillion in 2008 and up to $16 trillion now. If the Fed bought every bit of debt the US issued in that time, the most they could have is $6 trillion.

They also own mortgage backed securities. According to Wiki, the total value of all mortgage backed securities is $8.5 trillion. http://en.wikipedia.org/wiki/Mortgage-backed_security



So if the Fed owned every single mortgage backed security issued, they would have $8.5 trillion worth and if they bought every dollar of US debt issued since 2008, that would add $6 trillion. A lot ($14.5 trillion) but not $20 trillion. Heck, from where they used to be, $4 trillion is a lot. Prior to the crisis, their holdings were running just under $1 trillion.

http://commons.wikimedia.org/wiki/Fi...heet_total.png

According to their financial statements (which are audited annually), the Fed has $2.2 trillion in US Treasuries and $1.5 trillion in Mortgage Backed Securities. http://www.federalreserve.gov/releases/h41/current/ Other holdings push their grand total of assets to $4.058 trillion. (figures for January 30th, 2014).

[Carson]

Has there ever been a thread on the Fed that Zippy doesn't post in? With pretty bank provided graphs?

Look at that chart though. If it has any basis in reality we are really in trouble.

The way I see it the government uses the central bank pretty much the same way we tap our banks with our credit cards. Imagine the bank you borrow money from holding such a tiny proportion of assets grounded in reality.

It looks like one big hallucination!


More bull than beef!

[DFF]

According to their financial statements (which are audited annually), the Fed has $2.2 trillion in US Treasuries and $1.5 trillion in Mortgage Backed Securities

Rand Paul himself said that the audit provided by Deloitte and Touche was a joke. I remember when the lead auditor testified before Congress, and she didn't even know what was on the Fed's books. So, like I said, they've probably got a lot more on their balance sheet than just 4 trillion. Probably way more.