Federal Reserve Balance Sheet Charts – Weekly Update: 5/5/11

An update of the weekly Fed balance sheet charts for 5/5/11. With the continuation of ‘QE2′, Federal Reserve notes (and Fed balances) are becoming increasingly ‘good for’ US Government securities.


Federal Reserve Balance Sheet Chart

Click to enlarge. Source: Federal Reserve


Federal Reserve Balance Sheet Chart PROPORTIONS

Click to enlarge. Source: Federal Reserve


The first chart shows the Federal Reserve’s assets as recorded on the ‘factors affecting reserve balances’ statistical release. The second chart shows those assets on a proportional basis. That is, the latter chart shows the Fed’s various assets as a percentage of its total assets. These charts show that the Federal Reserve’s balance sheet continues to expand in favor of US Government notes and bonds.


A Federal Reserve note (and Fed balance) is a liability on the Federal Reserve – that is, the entire stock of outstanding Federal Reserve notes and balances is some kind of claim upon the Federal Reserve’s assets. So, when supposedly ‘important’ institutions found that they owed too many dollars and only owned (virtually worthless) MBSs, the Fed stepped in to debauch the dollar. They made dollars ‘good for’ Mortgage-backed Securities, and so – miraculously – the (insolvent) institutions that owed too many dollars and only owned MBSs found that they had been brought back from the grave. In addition to the acquisition of MBSs, the Federal Reserve also acquired numerous portfolios of junk from the likes of AIG etc.


It would seem that ‘QE2′ is an attempt to undo the damage that was done to the Federal Reserve’s assets (and by extension to the dollar). Although the recent quantitative easing program (QE2) has increased the size of the Fed’s balance sheet (which is dilutive for the dollar), it has also shifted the proportional holdings of the Federal Reserve back to US government securities (a more ‘traditional’ central banking asset). It is conceivable that the institutions that were truly ‘saved’ by the alterations to the dollar previously, might find themselves hurting once more (after all, this QE2 exercise has got people pointing towards inflation, inflation, inflation – which means being short dollars and long stuff).


I encourage you to look at the ‘Fiat Currencies’ section on this page if you’re interested in more detailed explanations of the concepts described above.


Elliott Wave Fed Ebook


See here for our collection of rare historical economic data.

Posted May 6, 2011