Tuesday, September 22, 2009

Fed's Latest Quarterly Z.1

The Fed released the Q2 Z.1 report last week. Throughout this year, I've been following the Agency Bond and MBS purchase program that the Fed has underway, and the Z.1 identifies ownership trends of these types of securities.

The snip below shows that through end of Q2, the US Monetary Authority (Fed) has increased its holdings from practically none to approximately $560B, while the "Household Sector" has reduced its holdings to just $129B from a peak of over $800B late last year.




I can't help but conclude that the Fed is essentially buying these valuable assets away from the Household Sector, as the public (that's us!) liquidates these securities for among other reasons to probably replace some lost income.

3 comments:

Mike Norman said...

Yes, and the Fed will end up making a huge profit. Taxpayers made out, right? Wrong!! It's a double loss to taxpayers because they will have lost their assets AND a portion of their income because of a horribly twisted perception that a) gov't cannot sustain demand; b) gov't has to "make money." Will the windfall profits the Fed makes be recycled back to taxpayers in the form of higher spending? No. It will result in a paydown of debt, thereby reducing the wealth of the non-governmental sector above and beyond what the asset purchase has already done.

The easiest thing the gov't could have done would have been to sustain employment and demand in the first place, so that the assets never went bad to begin with.

Dumb...unbelievably dumb!

Matt Franko said...

Mike,
I was hoping that our central bank was buying these securities from foreign entities, but this Z.1 tells it differently.
My (apparently wrong) thought process: Back in the fall the Fed had to bail out foreign central banks via unlimited US$ swaplines which peaked at over $600B, this eventually proved politically embarrassing to the Fed (see the video you posted with the congressional inquisition). So they went to the ECB et al and told them to scale back their systems US$ obligations because the Fed never wanted to be in a position to have to do that again. To help them liquidate, the Fed would buy Treasuries and MBS this year and they (foreigners) could use that opportunity to sell out of their positions, the Fed would hold these securities until they ran off.
Z.1 indicates that "Rest of the World" is down about $60B thru Q2, I thought the amount of selling would have been higher if the Fed was fomenting a foreign CB led structural liquidation to rid the system of dollar liquidity risk.
To the contrary, the dollar has apparently turned back around, trade deficit is headed back up in July, oil stuck at $70 with index speculators still in, and the Fed still has a full allotment swapline agreement with the ECB thru Feb of next year to provide UNLIMITED US$ if necessary. Dollars for everybody! (Except us)

googleheim said...

dollars for everyone but us

the problem is that this supports cocacola or philip morris who make more money with a stronger foreign currencies

but for small business, this is not good