Another Weekly Contraction in the Fed’s Balance Sheet – The Fed Continues to Reduce its holding of Mortgage-backed Securities

The total size of the Fed’s balance sheet decreased by around $6 billion over the week ending August 31, 2011. Currently the Fed seems to be sticking to the plan of cleaning up the composition of its balance sheet.

 

Federal Reserve Balance Sheet Chart - ASSETS

Assets of the Federal Reserve System. - Click to enlarge. Source: Federal Reserve

 

The total size of the Federal Reserve’s balance sheet decreased by $5.761 billion over the week ending August 31, 2011. This decrease came primarily from a reduction in its holdings of Mortgage-backed securities (- $7.4 billion) and ‘Other assets’ (- $.16 billion). These decreases were partially offset by increases in the Fed’s holdings of the beloved treasury bonds and notes.

 

Federal Reserve Balance Sheet Chart - ASSETS (Proportional)

Assets of the Federal Reserve System presented on a proportional basis. - Click to enlarge. Source: Federal Reserve

 

The chart of the Fed’s assets on a proportional basis continues to demonstrate the tendency towards a relatively smaller proportional holding of Mortgage-backed securities to the benefit of a relatively larger proportional holding of US Treasury bonds and notes. As we have maintained for months on end, this is negative for existing entrepreneurial structures over the long-term. The issue of our age is an irritatingly large legacy of debt. These debts can be considered ‘shorts on federal reserve notes‘. As the composition of the assets backing the Federal Reserve note reverts to some semblance of its former self, we may find that the heavy debtors that were relieved by the damage to the balance sheet during 2008/2009 may find themselves in a little bit of trouble again.

 

Federal Reserve Balance Sheet Chart - LIABILITIES

Liabilities of the Federal Reserve System - Click to enlarge. Source: Federal Reserve

 

The US Treasury’s general account posted a major increase on the week of around $30 billion (we’ll post a DTS update with greater detail later today). In contrast, the Fed’s other deposit liabilities decreased. The stock of Federal Reserve notes and repo liabilities increased over the week.

 

Federal Reserve Balance Sheet Chart - LIABILITIES (Proportional)

Liabilities of the Federal Reserve System presented on a proportional basis - Click to enlarge. Source: Federal Reserve

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Posted Sep 2, 2011