Santa Claus (?) he comink: Fed
doing another trillion or bust (?) to $3 tees before New Year’s Day
A recent review of Fed actions to date recalled that roughly a year ago the Fed’s (self manufactured) assets were roughly $900 billion — and, as a result of its rescue attempts since, they’ve gone to $1.8 trillion — about $1.3 of which is wounded bonds and similar that the Fed has taken off the hands of wounded financial instituitons.
Today, one of the supposedly hawkish members of the Fed board — ie, an Inflation Fighter typically damning the torpedoes — said in public that it’s likely the Fed’s balance sheet will rise to THREE trillion. ?!?
Before the year is out.
?!?!?
Perhaps in reaction, the dollar (rebounding lately against the euro, sterling) tanked today, and gold (and oil, of course) shot up.
The picture is reminiscent not only of what the Fed tried to do between 1929 and 1932 (discussed here a number of times across the past year) — but also, atmospherically at least, of the Weimar Republic’s death-by-inflation throes. People in the streets with wheelbarrows of evanescent cash, trying to spend it before it becomes completely worthless …
What happens when countries go bankrupt?
I’m not saying, even, what the Fed is doing is wrong (although there are plenty of people doing so — saying in effect that the Fed is fighting the LAST great depression instead of today’s — fighting a Liquidity Crisis in the banking system when in fact the problem is a Debt-Insolvency Crisis).
Me — I don’t know. It’s just noteworthy and shocking to watch this stuff happen and fly.
Here is a Gold Bug, Lance Lewis, at Minyanville.com, discussing today’s Fed speak:
$3 Trillion Fed Balloon?
This morning, the Fed’s supposed inflation hawk, Dallas Fed President Fisher, said the “Fed’s balance sheet may expand to $3 trillion by year’s end.â€Â
That means the Fed would have to take its balance sheet up over $1 trillion in just 7 weeks from the current $1.97 trillion (which had already doubled over the past 6 weeks from under $1 trillion). The next question is how would they do this?
Thus far, the Fed has not been actively monetizing government debt in the open market by creating cash out of thin air and buying treasury bonds. Instead, the Treasury has been playing a game whereby it has issued debt and then placed it on deposit with the Fed for the Fed to use as it pleases. This is still inflationary but not quite as inflation as if the Fed was in reality physically running the printing presses.
Now, the Treasury isn’t going to be issuing another trillion dollars of debt over the next 7 weeks to place with the Fed, so how is it going to pull this off? Could it be that Fisher is hinting that the Fed will soon be monetizing treasury debt?
I’ve been wondering how the bond market was going to be able to handle the record amounts of treasury debt that are about to wash over it like a tidal wave. Perhaps this is how? The Fed is simply going to buy it all.
Perhaps that’s why gold is up $36 and the dollar has experienced its biggest percentage drop ever against the euro today?
ed says:
Note this worrisome Fed obscurity re:
– which banks, etc are getting the trillions in cybercredits and/or Treasuries, and
– kinds and quantities of wounded instruments (mortgage bonds, credit card bonds, unsettled credit default swaps ..?) it’s taking in exchange.
As noted in prior posts, the Fed has far exceeded its original estimates re quantity and quality, and in 1932 followed roughly the same path, until it said enough.
At which point, a ten year depression settled in and banks across the country shut their doors.
November 10th, 2008 at 5:04 pm