Federal Reserve Balance Sheet Charts – Weekly Update: 18/5/11

An update of the weekly Fed balance sheet charts for 18/5/11. QE2 continues to make dollars increasingly ‘good for’ US Government notes and bonds.


Federal Reserve Balance Sheet Chart

Click to enlarge. Source: Federal Reserve


Federal Reserve Balance Sheet Proportional Chart

Click to enlarge.


[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.]


An Attempted Clean-up Operation by US Bureaucrats:


My hunch is that the officials of the US government (& pseudo-government) have patted themselves on the back after QE2. With a 300 point rally in the S&P 500, they most likely have congratulated themselves on restoring those sought-after ‘animal spirits‘. It would seem that they are trying to use these elevated spirits to their advantage by cleaning-up some of the ‘emergency programs’ implemented during the 2007/2008 crisis. QE2 itself has pushed the dollar to a more traditional stance; that is, the proportional holdings of traditional central banking assets (namely, gold, US government bonds and notes) have increased while the proportional holdings of – well – junk (namely, MBSs and portfolio holdings of AIG etc.) have decreased.


To name some examples:


  1. The holdings of US Treasury Securities have increased from $839 billion in November 2010 to $1.483 trillion as of 18/5/11.
  2. The holdings of Federal Agency Debt Securities have decreased from $149 billion in November 2010 to $123 billion as of 18/5/11.
  3. The holdings of Mortgage-backed Securities have decreased from $1 trillion in November 2010 to $925 billion as of 18/5/11.
  4. The Federal Reserve’s net portfolio holdings in Maiden Lane I,II & III LLC have decreased over the above period.
  5. Their preferred interests in AIA Aurora LLC & ALICO holdings LLC have decreased from $26 billion to $0.


At the same time, the Fed & US Treasury have wound down the supplementary financing program and the US Treasury has begun to unwind its MBS portfolio.


It is conceivable that the institutions that were truly ‘saved’ by the emergency alterations to the dollar, 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).


By the way, please check out the very long-term Fed balance sheet charts here. There’s lots more to come, and the charts should be extremely useful for gauging valuations for gold (and some other things).

See here for our collection of rare historical economic data.

Posted May 20, 2011