Crazy charts to document our crazy times.
By Wolf Richter for WOLF STREET.
Total assets on the Fed’s balance sheet for the week ended August 19, released this afternoon, rose by $53 billion, to $7.01 trillion, the second week in a row of increases, after two weeks in a row of declines. Total assets are now down by $158 billion from their peak on June 10.
We’re going to look at the five major QE-related categories on the Fed’s balance sheet: repos, central bank liquidity swaps, special purpose vehicles (SPVs), mortgage-backed securities (MBS), and Treasury securities.
Repurchase Agreements (Repos) remained at zero, 7th week:
Central-bank liquidity-swaps dropped by $4 billion.
The Fed’s “dollar liquidity swap lines” by which it provided dollars to a select group of other central banks, are falling out of use and are down to $96 billion, from a peak of $448 billion in early May. The Bank of Japan accounts for $77 billion, or 81% of the total. Swaps with the ECB fell to $8.7 billion. Swaps with the Bank of Mexico have been flat at $4.9 billion since the beginning of July. Swaps with the Swiss National Bank ticked down to $2.8 billion. Swaps with Singapore were flat $1.9 billion. Swaps with the rest of the central banks have matured:
SPVs flat at $200 billion, -$14 billion from 7 weeks ago.
The Treasury Department provides the equity capital to these Special Purpose Vehicles (SPVs) and the Fed lends to them. The amounts reflected in those SPVs reflect the sum of the equity capital from the Treasury Department and the loans from the Fed – turns out, the Fed has barely lent to them, because these SPVs have not been very active.
Even the corporate bond & bond ETF SPV is little used.
The Fed holds the corporate bonds and bond-ETFs it purchased in the SPV Corporate Credit Facilities or CCF (yellow in the chart below). The balance of the CCF has been about $44 billion since mid-July. But the Fed didn’t buy $44 billion in corporate bonds and ETFs. Far from it.
The CCF contained just $12 billion in bonds and ETFs at the end of July, the Fed disclosed in a separate detailed report. The rest was mostly the unused equity capital from the Treasury.
There are the SPVs:
- PDCF: Primary Dealer Credit Facility
- MMLF: Money Market Mutual Fund Liquidity Facility
- PPPLF: Paycheck Protection Program Liquidity Facility
- CPFF: Commercial Paper Funding Facility
- CCF: Corporate Credit Facilities: Buy corporate bonds, bond ETFs, and corporate loans.
- MSLP: Main Street Lending Program
- MLF: Municipal Liquidity Facility
- TALF: Term Asset-Backed Securities Loan Facility
About one-third of SPV balances are in the PPP loan facility (red), with which the Fed buys PPP loans from banks:
MBS rose by $44 billion to $1.98 trillion, flat with a month ago.
Balances of mortgage-backed securities (MBS) are erratic due to timing issues. Holders of MBS receive pass-through principal payments when mortgages are paid off, such as during the current refinance boom; and it takes 1-3 months for the Fed’s purchases of MBS to settle, which is when the Fed books the trades. These two go in opposite directions, hence the declines and rises:
Treasury securities rose by $25 billion to $4.35 trillion.
All year, the Fed has increased its Treasury holdings in a range between about $6 billion and $29 billion a week, except for the 10-week period, starting in mid-March and ending in mid-May, when it went hog-wild, buying as much as $362 billion in the week ended April 1. So this – the weekly increases in its holdings of Treasury securities since January 1 – makes for a crazy chart, to document our crazy times:
The balance of Treasury securities continues to ease higher at the pre-Pandemic pace, after the mega-burst in March, April, and May:
Under the Fed’s asset purchase program, the wealth of America’s 600-plus billionaires ballooned by $434 billion, to $3.4 trillion, while over 30 million people lost their jobs. Read… The Rich Got Richer During the Pandemic, Bailed Out by the Fed. How it Happened and Why That’s Bad for the Economy
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#Defund the Fed
The fed is the reason why the US is a first-world modern nation. Research the history. Before the fed, the US defaulted a few times. Just like what we see from banana republics over and over again.
Gov’t borrowing allowed an undeveloped wilderness to get infrastructure and grow. It allowed China to go from grass huts to modern cities in only 30 years.
Go ahead and flame me because a few dozen guys got rich. Life is unfair. Where there are humans there will be corruption. That was the price for pulling 100s of millions from subsistence farming into what we take for granted today. I’d say it was a good deal all around.
Macro Investor,
“The fed is the reason why the US is a first-world modern nation…”
The Fed is the reason why there is this huge wealth-and-income inequality in the US, where only a relatively small number of people get most of the spoils, and the vast majority is in a day-to-day struggle to just get by, as their incomes are eaten up by price increases.
The top 10% of Americans own 87% of the stocks, and the lower 60% never make enough to accumulate enough to invest. Their life is a paycheck-to-paycheck struggle with rising prices.
Wolf,
Apple added half a Trillion dollars in funny-money on stock split announcement alone. In like 4 weeks.
Wolf:
Two Economies in America. It is paradise for those who own nearly 90% of Wall St wealth!
Those in the economic zone of top 10% are in denial of plight of those in the bottom 80-90%.
They’re not in denial. They just don’t care.
Wolf wrote “The Fed is the reason why there is this huge wealth-and-income inequality in the US, where only a relatively small number of people get most of the spoils, and the vast majority is in a day-to-day struggle to just get by”
The reason for this is globalization. Less educated people used to make a decent living working in factories. Remember when Detroit was “Mo town”, a good place to live and work? Those jobs were replaced by low-wage service jobs.
The rich people got that way by paying $1 an hour to Asians, instead of $30 to locals. American consumer still love their expensive Nike’s, made in China.
Yes, globalization has certainly been a factor. Even Powell admitted to that during the press conference, as he was deflecting the accusation, dressed up as a question from a Bloomberg reporter, that the Fed is responsible.
#In Fed We Trust
Does the Federal Reserve hold enough reserves themselves if their holdings drop below fair market value? Could they eventually collapse? I often wonder if the fed is the biggest fraud in the financial world..
@Macro:
1) The US became a first-world modern nation before 1910, before the Fed even existed.
2) Even with the Fed, the US has implicitly defaulted 3 times: first in the Great Depression (gold revaluation). Second in the Nixon-Ford-Carter-Reagan era (suspension of gold convertibility + rampant inflation). In both those cases bondholders might have received “dollars” back, but they weren’t the same “dollars” that they invested. The third implicit default is the ongoing one, in which investors receive negative yields after inflation, with longer-term Treasury holders once again likely to be repaid in “dollars” qualitatively different from what they put down.
3) It wasn’t government borrowing in the US, or China, that “developed the wilderness”. It was productive work – intelligent labor – that did everything. Money never actually does any work, only people, their machines, and natural processes like sunshine and rain.
4) Yes, humans breed corruption, but there are qualitative differences between the level present now and that prevailing a mere 30 years ago. The metrics of wealth inequality are a great measure, but there are many, many others, such as the “normalization” of previously criminally corrupt behaviors.
Macro Investor:
The “Federal” bankster cartel “Reserve” has been used for decades as a corrupt instrument to funnel funds from the poorer Americans to the banksters’ and their ultra-rich cronies, including the foreign and US owners of the banks that own its district banks, foreign billionaires (reportedly including trillionaire families), and Wall Streeters. It has been seeking to create inflation by gifting funds to its banksters, Fed interest payments to banksters, Fed dividends to its banks, printing of money to bail out its little banksters (See CNBC’s “The Size of the Bank Bailout: $29 Trillion”), etc., which results in all Americans seeing their real income be decreased, while the banksters are enriched.
It has sought to prevent regulation of or government action against banks, claiming that it alone should regulate them. It continues to try to relieve them of the few requirements imposed by government. See e.g., “Democrats Decry Fed Push to Ease Capital Requirements for Big Bank” in the NY times. As Simon Johnson pointed out in “The Quiet Coup” the banksters and Wall Streeters took over our government long ago, so those regulations have been kept to a minimum.
Each member bank in the “Federal” Reserve bankster cartel gets one vote in electing “Fed” regional district bank presidents, so the ultra-rich need only gain control over various small and large US banks not own all shares of all of them, to elect all regional “Fed” presidents, who then get to vote in the FOMC with the politician-appointed members. Thereafter, if two of the appointees vote with the district bank presidents, they can overrule the remaining appointees.
Furthermore, all of the “Fed” regional bank presidents are present at each FOMC meeting “to control the room.” The “Fed” appointees do the will of the bankster appointees if they know what is good for them and their families. I would recommend many bodyguards to any appointee that rebels, so accidents do not happen.
The “Federal” Reserve bankster cartel has parasitized Americans for decades, slowly relieving them of their savings and wealth, since its formation by a secret bankster cabal through the use of misstatements that it was against the banks not controlled and promoted by them. This is why it was not called the “Aldrich Plan” after such centralized “banking was met with much opposition from politicians, who were suspicious of a central bank and who charged that Aldrich was biased due to his close ties to wealthy bankers such as J.P. Morgan and his daughter’s marriage to John D. Rockefeller, Jr.”
It is the chief enabler of the banksters’ frauds. It should be investigated, wiretapped, destroyed, and if they have engaged in any crime at all, each of its members should be thrown into prison.
If it had been abolished in the 1970s or any time long ago, we would all be much wealthier. A true GOVERNMENT agency can be created to act independently (not be subject to bankster influence) and perform what functions it performs that are not designed to profit banksters and funnel money from most Americans.
It is hard to find now the original articles that I read, but this summary (which clearly has been edited to not be against the banksters) will do. See https://en.wikipedia.org/wiki/History_of_the_Federal_Reserve_System#The_Federal_Reserve_Act,_1913
(By the way, I have been arguing with personnel at a certain large bank allegedly originally controlled by an Italian, who told me orally that someone fraudulently charged $2834+ on my credit card. The bank has ceased mailing me statements and evaded addressing my calls (many of which I recorded per its consent in its phone message), so I only later found out that my report of fraud was ignored and the fraudulently charge was not removed. Thus, I would look to all of your credit card statements carefully if I were you. Maybe, the banksters are now AGAIN increasing their profits by more tactics/”errors” in their favor.
Very good Summary of the situation long and short M. Thank you.
Also had the same exact problem with the bank you mention,
CC Fraud would not be adjusted properly, so we have gone elsewhere, and I too urge everyone to check their CC statements consistently and carefully.
And who is going to monetize the spending for your virus holiday? They might like to unwind their balance sheet, and let the markets price new issuance, Let Yields Rise. There would probably be an internal struggle at the Fed, and maybe a political intervention. Most here would welcome the move but there are deep repercussions. You would probably see the Depression play out in real terms.
Other countries print their own money, not give it to the banksters after they print it to lend back to their government. Other countries do not have banksters in a position to indirectly control and influence the “quasi-public” entity that controls their economy. That is why other countries, with fewer natural resources than our country, do as well or better in terms of the living standards, healthy, longevity, and purchasing power of their citizens.
Very long term total real return on stocks is between 6 – 7% above inflation. Last 10 years Fed has helped market run at nearly 2 times that rate. Can’t last, going to be some give back to get back to get back to reality.
It’s mind boggling digesting this alphabet soup of FED spigots. The FED just turns the handles trying to meter the flow with occasional gushes. I need an IPA or six.
I’m feeling better while drinking 3rd IPA in my Wolfstreet mug but still worried that the FED might replace spigots with hydrants at some desperate point in the future. If that happens it’s “Hell in a straight line”.
So the Wolf short is off?
“Total assets on the Fed’s balance sheet for the week ended August 19, released this afternoon, rose by $53 billion, to $7.01 trillion, the second week in a row of increases…”
No, this stuff fluctuates. Always does. QE was March, April, May, as you can see from the charts very clearly.
The assets that have been rolling off the Fed’s balance sheet (repos, swaps, some SPVs, etc…) are largely dependent on counter-party demand, are shorter duration, and are more crisis centric.
The big long-term asset buckets where the Fed is the sole determinant for balance sheet levels (Treasuries, MBS) are continuing to grow at a pace of roughly $30 billion week (give or take).
Once we get through this intermediate period where the counter-party assets roll off (<$100 billion swaps left), we are left with a long term commitment from the Fed for Treasury and MBS purchases in the ballpark of $1 to $2 trillion a year (5%-10% of GDP per year).
And the Fed has all but promised to keep pumping until inflation overshoots 2% for a long time. This recent pause in balance sheet growth is just that, a pause…
Taps Coogan,
“…continuing to grow at a pace of roughly $30 billion week (give or take).”
Over the past 8 weeks, MBS have grown on average $4 billion a week, and Treasuries on average $20 billion a week, for an average of $24 billion total.
I agree with you that we’ll get inflation. The Fed has promised to keep INTEREST RATES low. That’s where its forward guidance is focused on.
But asset purchases are subject to change on short notice or without notice, as we have seen. The Fed didn’t make any announcements in April or May when it cut by a huge amount its asset purchases. In fact, Powell keeps saying that the Fed will put those “tools back in the toolbox” when they’re not needed anymore. And that’s precisely what we’re seeing.
Wolfy’s bet is about to pay off, ‘bigly’. 2 weeks out, max.
Nah Walt,,, more like middle of oct… Unless and until the congress and the pres can actually do some honest politicking and get their shyte together at least enough to stimulate US once again,,, which, IMO, they both will have to do to be able to claim such for the final weeks of this federal election travesty once again…
Maybe saw on here a while ago,,, both the sides of the aisles are just part and parcel and puppets for the same masters, and besides claiming otherwise, neither has any knowledge of actually ”working things out” as did their parties prior to the last 40-50 years or so, when they actually did seem to represent the people who elected them and wanted results that helped them…
Now, they represent the corporations who are now people according to the crony corrupt formerly supreme court, now just another set of puppets for the oligarchy.
”CLEAN HOUSE, SENATE TOO!!”
Remind me again please, what incentive does the Fed have not to continue to expand its balance sheet? Is there any if they would like to inflate and devalue the dollar against other currencies?
A revolution like MAY 1789 as the rich control even more of the wealth and the middle class is wiped out
Just a little math
Price levels double
at the following inflation rates
~7 years at 10%
~10 years at 7%
~14 years at 5%
The dollar index has declined an astounding 7% since MAY,15
Once the dollar loses its status as THE reserve currency ,all hell will break loose. Not only will the cost of imported goods skyrocket , but foreigners will disinvest their US assets.
But there is no alternative. Other currencies are in much worse shape. I don’t see USD losing its reserve currency status for next few decades.
Right you are.
10 trillion before end of year.
Used car prices are now reaching record high supposedly. By end of the year, bacon will be 50 bucks a slice ;)
Ok that’s a bit of an exaggeration, but I am eating In n Out every week now just because I can still afford it.
If TSLA market cap doesn’t blow past $1T by EOY, you can bet the Fed will create a special slush-fund SPV to start buying shares of Mr. Musk’s Ponzi-operation, too. But why wait until then?
Currently TSLA’s market cap is a miniscule 1,000,000x estimated 2020 unit sales – c’mon, Jerome P, how do you expect to MAGA with Fed money-printing if y’all allow USA’s flagship Ponzi-corp to limp along with an anemic valuation like that? It’s an embarrassment, is what it is.
At 3000, TSLA s market cap= the COMBINED total of market cap s of ALL the worlds auto makers ( except for China)
The stock market needs the economy. The economy does not need the stock market. The stock market needs the fed. The fed needs the stock market. The economy does not need the fed. The fed does not need the economy.
In summary, the fed prints for the sake of the stock market. Without a stock market or fed, the economy would still exist. Why does the fed exist? Why does the stock market exist? What is the point?
Someday “when” a vastly superior AI takes over the Earth, there will be no stock market or Fed as that would be illogical. So until then, enjoy the human circus…
love it. what parts of society will go away when robots rule. highways gone. stock market gone. pollution gone. man i wish to be alive in a couple hundred years.
You can have an economy without the stock market but it would be very primitive. Inventions quickly get rolled out to the masses because of the stock market funding process. Want to live with all the convenience s we enjoy today or want to live in a capital starved third world country.
Having said that the stock market has become a bit of a Frankenstein, not because it’s a bad invention. I am not sure why this is the case other than to say human nature.
The Art Basel Banana, December 4, 2019. Was this also an IPO?
Three bananas, two artist proofs. They tried something very different here. Damien Hurst wants one, and would swap an AP for any of his works, but no. Instead he is provided instructions to place the Banana and Duct tape in opposite directions.
That was probably a combination of money laundering and fools.
Sorry OS, but wrong on both counts:
1. With currently available information accessible through the net, there is absolutely no need for any kind of intangible market, no stocks, commodities, or any other kind; companies can and will go direct to investors through what is now being done in the name of crowd sourcing or some such by any name… and the companies will be held to much stricter codes of exec and c-suite compensation by agreement to make all such public immediately rather than being hidden, sometimes for years, etc.
2. SM is absolutely weird these days, per Frankstein,,, a total anachronism, etc, if for no other reason than above. Will many of the folks using stocks to screw working people hit the wall, absolutely. Too bad, go get a real job or use your ill gotten gains to buy a farmstead and try to get your assets to work,,, LOL.
Stock market is legal public ownership of real assets. If the company has no debt, shareholders own it outright. If you don’t want to participate, you can participate in corporate, municipal or federal bond markets. You can buy a CD or silver or gold or have rental property. You can invest in crowd source funding or Bitcoin. You can buy an annuity. They all require the investor to do their due diligence and not get in over their heads.
What’s going on???? $2000 TSLA, who would have thought?
I still dont think we have the whole picture here. There is a heck of a lot more money than $7TT that was created out of thin air.
My GUESS is the same way banks can turn $1 of collateral into a $10 loan I bet we’re really looking at 10x’s the above figure being created out of thin air??
I have read a few books on risk and bubbles. The bubble can go on for so long that it can suck even the most prudent person in. Most involve leveraging the system with debt and abandoning fundamental logic.
For me right now, it means trying to invest where you think about the future having many possible outcomes and being able to do ok in all of them. Tesla and some others are priced for a very specific future which may not occur.
@Old School
investing is largely pointless right now. Maybe a few people will invest through this correctly, but the money supply is up 22% so far this year. Anyone whose assets did not increase by 22% in the last 8 months is poorer.
So instead of focusing on investing, the rational thing to do when almost everything is overvalued is sell things that are overvalued
Options are:
1) Sell things you bought in the past at lower prices
2) Short things you don’t own
3) Create assets and equities and sell them. As in build houses, restore cars, and sell small businesses all for outlandish prices.
I choose option #3
#2 is financially hazardous, and I already sold all the assets I wanted to sell.
“What’s going on???? $2000 TSLA, who would have thought?”
People still think TSLA is a car company. It isn’t.
The history of these technology bubbles is one maybe two will be a good investment, the others will go to zero or lose nearly all their value. Tesla could be a surviver but I doubt it unless government puts in more money.
Right, exactly. The Tesla fan boys make references to Amazon, but that is a form of survivorship bias. Look at the Sun Microsystems, the Real Media, and the AOLs of the world.
Hope you’re right. $70 Trillion is enough money for everybody. Everyone gets a Tesla.
Speak for yourself…if it rides on Goodyears they can stick it where the sun don’t shine! And why should the Fed care who gets screwed by their actions…no one ever fully holds CEO’s accountable for what happens on their watch. No politician ever suffers the consequences for lying. Doctors get away with voodoo b.s. all the time. This entire sh*thouse of gold bricks is off limits for mass consumption without membership. Now I hope the freakin’ commies show them all the wall…they deserve it.
The Bolsheviks have their name and address,after we are slain,they are next.
When look back at history, we always laugh at people who live in the past centuries, like to believe in supernatural and unscientific explanation.
When future generation look back at us, perhaps they could laugh at people in the rest of the world. They work hard day in and day out. At the end, get the toilet paper from uncle Sam that keep churning out without any effort. Century ponzi!
I have lost confidence in the Federal government and the Fed and for the first time ever am going to start buying precious metals with extra cash. I have a relative wanting to sell down his stash to go debt free so I am thinking it might hurt to get up to 5% of assets
My brother in law has a top of the line metal detector. He travels to abandoned sites and finds the occasional rare coin. Underneath bleachers and along playing fields he finds dropped jewelry. And…he gets peaceful exercise at the same time. :-) Sunday mornings are the best time to go, so he says.
Maybe we will all turn into gleaners. Or as my mom used to say, “See a penny pick it up, and all the day you’ll have good luck” . Of course she weathered the Great Depression. Just think, we get to go through a pandemic and a Depression. My goodness, how wise we will eventually be when this is over. I hope it doesn’t hurt too bad.
regards
“My brother in law has a top of the line metal detector.”
Paulo,
That sounds like nerdy, low-tech fun!
“When look back at history, we always laugh at people who live in the past centuries, like to believe in supernatural and unscientific explanation.”
One would think that economics as an objective ‘science’ could manage our current challenges without making them worse. Instead, it seems the opposite. As has been pointed out again and again by astute commentators on Wolf Street (and why I read the comments — a lot of smart folks) there is no market, at least in the traditional sense.
Bail out everyone!
The market ceased to exist in 2008
2008 also proved that academic economics isn’t an “objective science”.
When the prevailing theories cannot predict events, or even retroactively explain them, any self-respecting economist should have confessed to the crisis and gotten back to the drawing board, like Keynes and Fisher back in 1929-1933. Or Cantillon after the Mississippi/South Sea bubbles.
Interesting that swaps line activity dropping..
is that a sign of the dollar’s decline and removal as world currency?
Neither. It’s a sign that the stresses overseas with dollar-funding have abated.
The dollar is the “Holy Spirit” in the financial Trinity. No one is really sure what it is. There is plenty of stress in Turkey (not in the dollar swap club) where the ECB has gotten involved, and China loaned them money. If the dollar isn’t in retreat, maybe US policy is. Maybe rates are rising, and the dollar, which pressures offshore dollar funding. The Lira buys fewer dollars. Foreign lines of offshore lending in dollars expands the hegemony? This is going to be an American century.
Interesting analogy. What are the other two entities?
Wait.. Canadian dollars?
If you know absolutely nothing about investing, know this. You can’t fight the Fed and come out ahead.
DON’T FIGHT THE FED:
Good analysis Mr. Richter. The $362 billion treasury purchases by J. Powell and the FOMC in the March to April 2020 timeframe may have been triggered by the massive margin calls (solvency?) creating the massive selling of treasuries to cover those margin calls. Remember that all asset classes were being sold including treasuries just to raise cash. Just assume that if the Federal Reserve had not stepped in to buy the treasuries what kind of discount would they have been sold at?
You just have to remember when fear sets in the Fed can’t save the market. They were running rate cuts and emergency policy all the way down to 666 on SP500 twelve years ago. Maybe it would have went lower without them, but still was a big drop.
Yeah, and the Fed was “supporting markets” all from March 1st through March 23rd. I’ll never cease to be amazed by how so many finance people have an unwavering belief in the ability of the Fed to fix all economic problems in the world. The Fed has lost control before, and will lose control again. And they have gotten more and more desperate in recent times, making me think that time is closer than anyone thinks.
Good analysis Mr. Richter. The $362 billion treasury purchases by J. Powell and the FOMC in the March to April 2020 timeframe may have been triggered by the massive margin calls (solvency?) creating the massive selling of treasuries to cover those margin calls. Remember that all asset classes were being sold including treasuries just to raise cash. Just assume that if the Federal Reserve had not stepped in to buy the treasuries what kind of discount would they have been sold at?
The more I look at that chart the more it looks like the minor reductions of the balance sheet was but an acceleration slope for the next climb to 10 trillions.
I guess Singapore (regional bank hub ) & korea swaps are proxies for China $ swaps. China’s private corporate $ debt is a tall mountain.
MBS & CMBS – is this the feel good fuel for the masses.
Invented in the early 2000’s
Underlying cause of the Great recession 2008
Bailed out and then resumed growth circa 2011
I watch as people with no money continue to gorge on personal debt and continue to wonder WHO thinks providing this debt is a good business plan.
Then i remember that the people selling the debt don’t own the debt – they just take a little “Scrape” along the way through fees etc and sell the debt to back to MBS or CMBS – who in turn wrap up the package into yet another “Equity offering” back to the masses via special funds etc.
All with FED money backing the continuing merry go round
Average $14B per week growth for the last 3 months
Please add comments or insight – am i reading this game correctly