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Jim Cook



Every once in a while I switch the TV channel from Fox to CNBC to see what the liberals are saying.  After listening awhile I get a deep sense of hopelessness and foreboding for our country.  The most important thing for the left is giving money to people.  They are happy to see the growth of food stamps, disability payments, housing subsidies, free healthcare and all the other welfare benefits.  They utterly fail to see the damage it is doing to the recipients.  Whole cities that once flourished have deteriorated into rotting eyesores populated with shambling hulks of chemically dependent drones.  These people are no longer employable.  They have become incompetent and helpless and the liberals can’t see that it’s their doing.

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The Best of Jim Cook Archive

Best of Bill Buckler
June 3, 2011
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The latest estimates for the size of the US Fed’s “balance sheet” are just under $US 2.8 TRILLION. Fed holdings of US Treasury debt are now $US 1.6 TRILLION, making the Fed by far the largest holder in the world. With just over a month left to go in the official lifespan of full-on QE2, the Fed is on track to equal or even surpass the combined total of Chinese and Japanese Treasury holdings. And don’t forget that the Fed does not intend to stop monetising Treasury debt on July 1. They will still be “re-investing” the proceeds of their non Treasury balance sheet holdings in Treasuries.

Much bigger than the sheer size of these Fed debt holdings and the pace at which they are increasing is the fact that the Fed is buying almost all (in some estimates more than all) the debt that the Treasury is emitting. The latest update of the Fed’s balance sheet shows the biggest weekly fall in Treasuries held in its “custodial account” in almost four years - since the very early days of the GFC. There is no way to precisely “measure” the amount of US Treasuries held by foreigners, but the Fed’s “custodial account” is used by many as the best available indicator. Interestingly, on May 26-27, the two days after this latest report came out, the trade-weighted US Dollar Index (USDX) suddenly plummeted from 76.03 to 75.01. That gave back about one-third of the USDX gains since the end of April.

If foreign US Treasury holders are selling Treasuries, and the drop in the “custodial account” says they are, the abrupt drop on the USDX shows that they are not stopping there but are selling out of the US Dollars gained from these sales. What are they buying? It could be other currencies, non US Dollar denominated debt paper, stocks, commodities, precious metals or real goods. Whatever they are buying, they are NOT buying the “full faith and credit of the US government” argument. That is clear.

A “Balancing Act” At The Fed:

Mr Bernanke and his colleagues at the Fed are reluctantly being forced to talk more and more about what their plans are when the official end of their “$US 600 Billion” QE2 hits on June 30. In the first place, QE2 is not $US 600 Billion or double the official level of QE1. It is $US 900 Billion or triple QE1. The Fed could not have bought the $US 112-115 Billion a month in Treasury debt that they have bought without the re-investment of “income” from its balance sheet. That is what it has done.

During his first post FOMC press conference ever on April 27, Mr Bernanke made it clear that the Fed would continue with this re-investment after June 30. Happily for Mr Bernanke, the Fed has only scheduled four press conferences a year (one every second FOMC meeting). That means that Mr Bernanke will not have to front the press after the next meeting which takes place on June 21-22. The next Bernanke press conference will take place at the FOMC meeting after that, on August 9. That’s six weeks after the end of QE2 and a week after Mr Geithner’s deadline for the Treasury’s debt limit.

If Mr Bernanke can actually delay his next press conference until August 9, he will have done very well. But as June 30 approaches, the questions about what will happen on July 1 and after are becoming ever more urgent. One Fed response which is frequently quoted is their professed desire to shrink their balance sheet back down to the $US 750-850 Billion region - its level before the GFC hit. As recently as December 2007, the balance sheet stood at “only” $US 870 Billion. The Fed has also stated that they want to get the balance sheet back to being almost exclusively Treasuries.

Today, the Fed’s balance sheet is more than three-and-a-half times the size that it was in late 2007. Treasury holdings alone are twice as big as the entire balance sheet was back then. As The Privateer has pointed out many times, the $US 925 Billion in mortgage-backed securities in the Fed’s balance sheet would be worthless if they were not there. What about the $US 1.6 TRILLION in Treasuries?


.Ó 2009 – The Privateer

(reproduced with permission)


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