Monday, October 25, 2010

QE2, perhaps, but Fed slowly reducing its balance sheet.

There's been a lot of talk about QE2 and the Fed has been purchasing bonds (setting bond rates lower), but it's also been quietly reducing its balance sheet.

These are the total amount of bonds purchased so far in Oct (millions $)

10/22/2010 $2,490
10/20/2010 $660
10/18/2010 $6,260
10/15/2010 $4,690
10/6/2010 $2,069
10/5/2010 $5,190

Total: $21,359

And here is the Fed's balance sheet:

So, yes, bonds have been bought, but as I said, that’s how the Fed sets rates lower.

The important thing, however, is that the Fed’s balance sheet (factors affecting reserve balances) have gone down. So while it is buying bonds, it is also selling other assets or allowing certain liquidity programs to expire. The total amount of reserves credited to the banking system has fallen. No net new “money” has been added.


googleheim said...

Mike :

Liquidity drain examples >

1. 2000 Clinton balances budget and causes recession.

2. 1994 Republican congress dismisses the SuperConductor SuperCollider and causes a recession in Texas due to the ramp up. Causes USA to fall short of fundemental research and hands the opportunity to EU & Swiss who build one 1/3 size for 3 times price. We could've should've made that asset.

3. China saving U$A treasuries - 1 trillion could be spent here to stimulate our economy by buying our products for export to China.
This is majority of current recession cause.

4. USA Corporations keeping taxable earnings offshore - 1 trillion for taxation and for redistribution to US economy.
This is majority of current recession cause.

5. Any and all Tea Party designs as well as Republican crimes - deficit terrorism & budget axers.

6. Current subsidized and fraud in price of oil. Because the price of oil is being protected by big oil ( example : closing Gulf drilling due to BP sham to keep prices up artificially ) and is minimum 2 times price should be, then the natural cycle of washing out the zombies out there and creating a real bottom is delayed.
This is prolonging the recession.

7. etc

Bob said...

Long only etfs must be at it again,
SGG sugar, long only, USO long only, GLD long only, some examples,
all of these etfs must purchase the underlying commodities, but there is no other side of the trade. Are these etfs distorting the markets and cause flash crashes when they reset, SGG dumped hard Feb 2010 to May. How does the investment instutions piling in as speculators avoid distorting these commodity markets?
I think they do. This plus the dropping USD are aggrevating the situation. Does anybody else see this?

mike norman said...


These long only ETFs are ABSOLUTELY distorting the trade. I've interviewed guys from the physical side and they're telling me in many of these commodities actual demand is collapsing, but speculative activity is leading to huge amounts of storage. If they ever want to sell this stuff, there won't be any buyers.