The Fed’s Balance Sheet Size Approaches $3 Trillion

An update of the weekly Federal Reserve balance sheet charts for 17/6/11. As we enter the final fortnight of the notorious ‘QE2′, we find that the Fed’s balance sheet is approaching a whopping $3 trillion!

 

Federal Reserve Balance Sheet Chart

Click to enlarge. Source: Federal Reserve

Federal Reserve Balance Sheet Chart (Proportional)

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.]

 

As can be seen from the charts above, the total size of the Federal Reserve balance sheet is approaching $3 trillion. Moreover, the degree to which dollars have become ‘good for’ US government securities has increased notably – US government notes and bonds represent over 50% of the Fed’s balance sheets (via the accounting practices and calculations used in the above chart).

 

Regardless of the pedantry and opacity of the Fed’s accounting practices, the point is that the Fed owns proportionally more US government bonds (a relatively ‘traditional’ central banking asset), and own proportionally less Mortgage-backed securities. As I have maintained over the past few months, it is no surprise that the housing-related financiers should run into trouble as a result of QE2. Prior to 2007, they owned Housing related stuff and owed dollars. This became a rather uninviting prospect by 2008, so the Fed made dollars ‘good for’ MBSs. In this way, their woes were alleviated somewhat. However, now that QE2 has shifted the Fed’s proportional holdings to a more ‘traditional’ stance, it is no surprise that these institutions should run into trouble again.

 

As I have said previously, this has been one component in a widespread clean-up operation in the public sector. In a world where the private sector is caught up in an uninviting ‘short position’ in money (via the medium of debt), this is likely to lead to financial stress (and – indeed – it has).

See here for our collection of rare historical economic data.

Posted Jun 17, 2011