The Fed was hit with withdrawals of $83.3 billion last Wednesday, the largest withdrawals from its deposit accounts that were not associated with quarterly tax payments since February of 2009. $7 billion of that was the net cash transferred to the US Treasury from its note and bond sales less outlays. The Fed still had to meet the other $76 billion. These transactions were revealed in the Fed’s weekly H.4.1 report.
The Fed was apparently forced to take extraordinary measures to fund these withdrawals. These included the outright sale of nearly $24 billion in its Treasury note and bond holdings from the System Open Market Account. As a result, the Fed’s System Open Market Account (SOMA) fell to $2.611 trillion, some $43 billion below the Fed’s stated target of $2.654 trillion. Prior to this week, it had not strayed from by more than $7 billion since June. The Fed’s action was not only a direct contradiction of its stated policy, but it was done without warning or explanation. It ran counter to Bernanke’s penchant for telegraphing every important move the Fed makes so that the banking/speculating organizations can front-run it.
The Fed took another unusual and virtually unprecedented action to fund these massive withdrawals. It borrowed $43 billion from foreign central banks (FCBs) through Reverse Repurchase Agreements (revese repos, or RRPs).
The Fed’s commitments of reverse repurchase agreements, where it pledges its securities holdings in return for cash loans, bulged by a record amount to a record level. The magnitude of this action is unprecedented....Adler concludes:
I don’t know whether this is some kind of technical adjustment, however big, or a sign that the wheels might be beginning to come off the world financial system. Given what’s going on with countries and brokerages going bankrupt and internet coupon companies setting the investing world on fire, it’s difficult not to suspect the latter.
We’ll have to see what hits the fan this week. If no reports show up in the mainstream media, rather than concluding that there’s nothing here, I would tend to suspect that there is, and that the reason there’s no reporting is that the Fed does not want us to know. I’d infer from that that Dr. Bernankenstein has lost control of his monster.
Read the whole post at The Wall Street Examiner, Hit With Big Withdrawals, Fed Sells Assets, Borrows Cash by Lee Adler
(h/t Zero Hedge)