Quick Update And Graphics Of The Fed’s Balance Sheet

I have been working on and researching many topics, but I don't have anything ready to publish. To hold everyone over till tomorrow, here are some pretty graphics I made of the Fed's balance sheet (I will do a longer entry on them later).

Fed's Balance sheet

Fed's Assets Broken Down

Fed's Assets Broken Down (detailed)

Fed's Liabilities Broken Down

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28 Responses to Quick Update And Graphics Of The Fed’s Balance Sheet

  1. Bowtie says:

    Eric, I have been reading Mish's posts recently. I am tending to agree with his recent post about deflation. He claims that the the credit crunch is far outpacing the money printing.

    If he is right, and we are experiencing a deflation, what does that mean for the dollar and gold?

  2. Bowtie says:

    Another note, he uses the following Austrian definitions, which I kinda use as the gold standard:

    inflation = increase in money supply

    deflation = decrease in money supply

    and money supply would equal credit, deposits, plus physical.

  3. Numonic says:

    Bowtie I've answered your question. Do you not agree with it? Is that why you are asking Eric?

    Why is it that when ever people(especially deflationists) mention the credit crunch, they only focus on what a credit crunch will do to the customer without considering what it would do to the seller. They assume that since there is a credit crunch the customer won't have the money to buy goods. Never considering that the seller borrows cash just like the customer does. They consider that the consumer is getting loans but never consider that the seller is getting loans also. If the seller can't get a loan, he can't run his business. The business either finds away to get the money or shuts down. If the business can't get a loan the only way the business will get the money it needs to pay the rising borrowing costs is by raising prices. If you agree that the credit crunch is outpacing the money printing then you are agreeing that borrowing costs will continue rising. So either prices rise or massive companies and businesses shut down. Weak dollar or starvation. Those are the choices. I'm sure it will be an easy choice and I'm sure the choice will be a weak dollar. So do what you have to to prepare for a weak dollar. Hoard silver.

    Also Bowtie consider this:

    How come when there's talk of deflation/inflation, no one mentions the rising borrowing costs. Cost is a Cost. If borrowing costs are rising, that is inflation. And borrowing costs are rising even as the govt. is doing everything in it's power to stop it from rising. That is inflation. In fact that is hyperinflation. Technically prices are rising in the country more than they ever have. When the govt. is using all it's power(Fed Funds Rate at 0) to try to stop prices from rising and is still failing to the point that massive companies are closing down and banks are failing, that means that prices are rising more than they ever have. That means that prices are rising so high that we need larger bills to pay those prices. Do you understand what I'm saying? All these bailouts, 0 interest rates, closings, mergers and layoffs is to cut costs. what costs you ask? Borrowing costs. And what has been the number one item on not only America but the worlds list to
    buy in the past several decades? Credit. Yes credit is an item just like anything else and it has a price and right now it's real price is higher than it's ever been. There has never been a time where the govt. was trying harder to bring the price of credit down and on top of that failing. That means more money is being spent on credit than ever in history. If I said more money is being spent on food than ever in history, you would agree that that is inflation, so why wouldn't you say the same about credit? In fact credit has been used more and by more people in the world than food. Credit has been the number 1 item on the worlds list of things to own for several decades. If the price of the most popular thing to own in the world is rising more than ever before why wouldn't you call that inflation? Whether you take the Austrian's definition of inflation(increasing the monetary base) or any other definition of inflation(such as prices rising) we are
    experiencing it all.

  4. Bowtie says:

    Numonic: It's not that i disagree, i just don't understand. I hoard both gold and silver.

    I kinda get what you are saying - if food were skyrocketing I'd say that's inflation. And at some point we'd all stop using the dollar to purchase food.

    But if the price of credit is going up, and we are using more dollars to pay for credit, wouldn't that leave less dollars available for other things?

    I mean i understand what you are saying that the cost of borrowing is getting so high. But why does that mean the dollar goes worthless?

  5. Numonic says:

    Wow Bowtie. i can't believe you are still missing my point. Think of it this way. Say you own a store but in order to keep that store running you have to borrow money to buy the items you are selling(by the way I hope you know this is how all businesses run, they borrow to survive). The credit crunch is raising the cost of credit. The govt. is doing everything in it's power to try to bring those costs down by pumping liquidity(physical cash) in to the system but it's failing as despite their efforts the credit crunch continues on. But back to your store, say your borrowing costs have risen to costs higher than you gross in. How will you get the money to pay your borrowing costs? You can sell stock(been there done that, that's failing), you can cut costs by firing employees(been there done that that's failing), you can reduce inventory(been there doen that, that's failing), you can have a blow out sale in hopes enough people come to by your goods(been there done that and realized even if I sold all my goods at those lower prices, I wouldn't make enough to pay the borrowing costs) Hmmm. So my only option is to raise prices. I raise prices and sell what I have to the debt collectors at the higher price.

    Check out this video on inflation.

    http://www.youtube.com/watch?v=99Dzdc1H0wM

    watch the part how rising prices keep away the debt collector at 6min 52 sec.

  6. Jay Midnyte says:

    This is actually even simpler than you guys are making it. Don't think of all the extra costs of borrowing and all of that. This is a CURRENCY CRISIS. The collapse of the dollar or loss of strength/purchasing power will make all ASSETS (gold, oil, silver, precious metals, commodities & food) priced in DOLLARS rise in cost.

    If the dollar were to drastically strengthen (almost no chance) then the price of goods would decrease due to higher purchasing power!

    Graph of dollar purchasing power over time

    Follow the dollar index (weighted against other major currencies) here

  7. Numonic says:

    Bowtie, think of it like this. The harder credit crunches, the more companies will close down. So in the same sense you are thinking of as loaned money in the hands of customers buying things and decreasing the supply of those things, the credit crunch is doing the same thing. And I understand that unemployment is rising and you may think that since unemployment is rising that the drop in inventory is matching the drop in demand but that is not true. The drop in inventory will keep going long after the demand stops dropping because before the credit crunch ends, it has to go through liquidating hundreds of trillions of dollars worth of things. All the things on earth aren't worth the total the credit crunch is trying to squeeze out of it. So the earth will be barren well before the credit crunch ends unless we raise prices. Easy credit is not the only way to get supply destruction, extremely tight credit does it too and we are witnessing it.

  8. Jay Midnyte says:

    that being said I expect inflation in all commodities, precious metals, and food.

    I expect deflation in real wages and luxury and discretionary items

  9. Natasa says:

    Personally I never could agreed with "Mish definition of money supply".
    On the other side I understand this man as very arrogant person too.
    Besides, I do not think that he "followed" Austrian school. It is just so "contrarian" to say - I am from Austrian school, but if he is really one - I have my very strong doubts.

    Personally, I think that Numonic explanation is closer to reality than Mishs.
    Moreover, even Eric from the first beginning, was a "deflationist", as I remember...

    Generally,
    I think that "deflation" theory is just too simple, and if you considerate it - it is as 2D picture of events.

    If you taking even "deepness" of this picture (3D) - I think you have something as Eric and Numonic talking about.

    And I think that Jay Midnyte here, has right too.
    Namely, looking just on the US as the "center of the World" - and forgetting other major players - just leading to simple conclusion - deflation. It considerate that ALL PLAYERS will just fight to "feed USA" and its enormous debt.
    Despite the fact that US government - "producing" ENORMOUS amount of paper money effectively destroying the WORTH of those papers in hands of OTHER major players.
    That is quite "egocentric" view.

    I am sure that Chinese, Russians, Japanese, Arabs, Europeans ... just REALIZED that the paper in their pockets (FED notes) will be worth less and less every single day in the future...

    Of course EVERYBODY is more or less silence in public about it.
    Logical.
    What should they do?
    Scream that those paper (FED notes) are worthless?

    No. They MUST pretend that everything is OK. Even they MUST publicly "announce" that FED notes are quite good investment since "deep here - deep there of US economy" (which is nonsense)...
    AND they announce too that they "buying" more of this "good staff", as today on Bloomberg:
    http://www.bloomberg.com/apps/news?pid=20602081&sid;=a6KZAWjfwUsE

    BUT, I am sure that ALL PLAYERS know the status very well. To consider something other - would be to doubt in basic intelligence of the PLAYERS (or "prisoners" of the dollar trap)...

    NOBODY would like to stay "prisoner".
    EVERYBODY would like to - escape.

    Just now - EVERYBODY (except USA) looking ("observing") - each other.
    EVERY "fast move" of ANYBODY - means "Start shot" - to one escape attempt... that means life or death - OUT from USD!

    Actually - I am waiting a kind of "prisoners" stampede.

    BTW - it could happened that some kind of short "deflationary jolt" (as some deflationist call it) as last week closing couple new banks - occurs ...
    BUT the reaction of FED (and "prisoners")- will be prompt too.

    LG
    Natasa

  10. Anonymous says:

    Natasa said :
    NOBODY would like to stay "prisoner".
    EVERYBODY would like to - escape….Actually - I am waiting a kind of "prisoners" stampede..

    One could easily take up the conspiracy theories that there was nothing wrong with casino, bubble , Ponzi/maddoff system ,that its all been a deliberate policy of illuminati , Jews or whomever to deliberately bring the system down after a final looting and move to an offshore Caribbean tax haven for their retirement . That the Chinese are ‘trapped”in the dollar and passively waiting for their savings value to be inflated away. That they are simply stupid and do not know how capitalism works. For an outline on what the Chinese prisoners may be actively up to as they seek a way out see:

    http://www.leap2020.eu/When-China-prepares-its-Great-Escape-from-the-dollar-trap-for-the-end-of-summer-2009_a3582.html

    - Excerpt GEAB N°34 (April 16, 2009) - LEAP/E2020 believes that the next stage of the crisis will result from a Chinese dream. Indeed, what on earth can China be dreaming of, caught – if we listen to Washington – in the “dollar trap” of its USD 1,400-billion worth of USD-denominated assets? If we believe US leaders and their scores of media experts, China is only dreaming of remaining a prisoner, and even intensifying the severity of its prison conditions by always buying more US Treasuries and Dollars.

    In fact, everyone knows what prisoners dream of. They dream of escaping of course, of getting away from prison. Therefore, LEAP/E2020 has no doubt that Beijing is constantly striving to find the means of disposing, as quickly as possible, of the mountain of « toxic » assets which US T-Bonds and Dollars have become, keeping the wealth of 1,300 billion Chinese citizens prisoner. In any good escape story, the prisoners do not spend their time making announcements that they are preparing to get away. In fact, on the contrary, they tend to avoid arousing their guards’ vigilance.”

    One can even believe that the Fed and treasury and the stupid dumb US finance capitalists cannot see the writing on the wall even tho they know they are bankrupt already and living on handouts and will just let it all grind on to its clearly foreseeable hyperinflationary end. A slow drip by drip death.

    I believe they will not be passive either . The way the Paulson bailout was imposed shows they will try and be active too. To take desperate even unprecedented decisive action. The extended bank holiday theories make sense to me, that they won’t simply “break faith” and their word on a strong dollar by announcing a massive devaluation of the dollar so they can monetarise away a lot of the U$ debt. Announcing a bank holiday so as “to clear up its previously “unknown” and” surprising “financial and bank problems and overvalued property markets will result in the rest of the world quickly devaluing the dollar for them.Say by 30%?

    Thereby they will hope avoid a formal default on debt and devalue all US property assets
    against other currencies . The banksters will then claim “surprise” again and complain about the “unfairness” of the rest of the world in attacking a “ fundamentally sound’dollar in that way, just because it had a few bank debt problems they would easily have been able to sort out with a bank holiday
    Oh well such is life.
    Ah so. And we are so truly sorry China and Japan ! But mission accomplished?

    Annoyingmaos

  11. John Haskell says:

    Numonic-
    Why then during the greatest credit crunch in American history (1930-32) did prices not rise? In fact the price level fell approximately 25% during this period.

    When formulating your theories, do you take facts into account?

  12. Anonymous says:

    @Everybody

    For what it's worth:

    There's something happening here
    What it is ain't exactly clear
    There's a man with a gun over there
    Telling me I got to beware

    I think it's time we stop, children, what's that sound
    Everybody look what's going down

    There's battle lines being drawn
    Nobody's right if everybody's wrong
    Young people speaking their minds
    Getting so much resistance from behind

    I think it's time we stop, hey, what's that sound
    Everybody look what's going down

    What a field-day for the heat
    A thousand people in the street
    Singing songs and carrying signs
    Mostly say, hooray for our side

    It's time we stop, hey, what's that sound
    Everybody look what's going down

    Paranoia strikes deep
    Into your life it will creep
    It starts when you're always afraid
    You step out of line, the man come and take you away

    We better stop, hey, what's that sound
    Everybody look what's going down
    Stop, hey, what's that sound
    Everybody look what's going down
    Stop, now, what's that sound
    Everybody look what's going down
    Stop, children, what's that sound
    Everybody look what's going down

  13. dashxdr says:

    Ty Andros and Jim Willie CB made a good point regarding inflation and deflation.

    They assert there will be deflation in all you own, and inflation in all you use.

    Squeezed from both ends.

  14. stibot says:

    Eric, interesting article about GS Looking Behind The Curtain by Martin A. Armstrong.

  15. Natasa says:

    "...
    We now interrupt you for an important news update..."

    Wauuuuu Annon,
    It really looks like you are right and most people here are not.
    You are the "right man"!
    Congratulations.

    Just to remind you - last time when we got so "good news" about "escape to safety dollar" - FED made "some actions" to make it "even more safety"...

    What you think that they do now?

    Since you do not like any comment here, you definitely do not agreed with Numonic.

    He said strong dollar= starvation.

    Not only you do not believe him - but you are very happy that you and other fellow Americans can continue buy cheep labor and staff from around the world for your green paper...
    And even better - American economy is a catastrophic, BUT the "production" of "green paper", fraud and lies and "safety" - still going on...

    And "dollar bull" is not just "alive" - it is "kicking" too.... Wauuuu!
    Awesome!

    "Long live American dream!"

    I would not like to destroy your happiness, but still I suggest you to - wait couple days...

    I think that would be OK for you too?

    Anyway, thank you for your very "important news"

    LG
    Natasa

  16. Bowtie said...
    Eric, I have been reading Mish's posts recently. I am tending to agree with his recent post about deflation. He claims that the the credit crunch is far outpacing the money printing.

    Inflation/deflation isn't limited to the supply of dollars. When banks sell gold futures for gold they don't have, they are inflating the supply of gold and decreasing its value. When banks default on their obligation to deliver gold, they will be deflating the supply of gold and increasing its value (people stop treating gold futures as the equivalent of gold).

    It is GUARRANTEED that we see deflation in commodities, which will make commodities go up against the dollar.

    Mish completely ignores the potential for deflation in anything else than dollars, which makes his analysis incomplete and useless.

  17. Anonymous says:

    @Natasa

    It's a funny thing really...

    Its not that I don't believe that a dollar collapse cannot happen...

    I just disagree with the time line that some here believe...

    I disagree with the outcome that people here have stated will happen...

    And I also disagree that if your an American that the best place to have your money would be in commodities when the dollar collapses...

    Personally I believe that you guys focus to much on increasing your personal wealth...

    But this I can guarantee: If the dollar should collapse - wealth wont matter then...

    As the old saying goes, "be careful what you wish for".

  18. Anonymous said...
    And I also disagree that if your an American that the best place to have your money would be in commodities when the dollar collapses...

    Where else do you want to have your money when the dollar collapses? A dollar collapse also means the collapse of US futures markets, US credit markets, US derivative markets (collateral backing them collapses), and the US service sector. Commodities and commodity stocks are some of few investments whose value won't collapse.

    Personally I believe that you guys focus to much on increasing your personal wealth...

    this is more about "preserving" personal wealth.

    But this I can guarantee: If the dollar should collapse - wealth wont matter then...

    There are times and places where wealth does indeed stop mattering: during the middle of a war zone, after a natural disaster, or during the middle of an economic collapse. During these periods, the supply of goods gets disrupted and even if you have wealth you might not be able to use it. However, even in the worst of these cases, the time of upwheval is a temporary. Once it ends, wealth will matter again, like it always has.

    Even if there is a risk you might lose access to it temporarily, owning some gold in a swiss vault is not a bad investment because once things return to normal you will have preserved your wealth.

    As the old saying goes, "be careful what you wish for".

    No one wishes for economic collapse. I get angry every time I see more evidence about how badly Goldman/treasury crowd have damaged our financial system. I am not HAPPY with their actions. I am not HAPPY that the dollar's prospects have been so badly damaged I seen no possibility for its survival. The US dollar, like the Titanic, is sinking, and I want to be on one of the lifeboats, but I am not happy with the situation at all.

    If I could go back in time and throw some Goldman Sach executives in jail (especially Rubin) to prevent them from wrecking the US economy, I would. But I can't go back in time, so all I can do is prepare to deal with fallout of their actions, the collapse of the US economic system.

  19. dashxdr says:

    "No one wishes for economic collapse".

    Er, I beg to differ. I wish for it. I see it as the only way to remove the last Evil Empire (that is, the USA).

    I get irritated when people appear relieved when some Fed/government shenanigans, gaming of markets, postpones the collapse for a bit longer. C'mon already. The longer we wait, the worse it'll be.

    But I'm an optimist. I look forward to the time after the US's final experiment with socialism/fascism fails. Then we can rebuild a better world.

  20. Bowtie says:

    @ dashxdr:

    if you are lucky enough to make it.

  21. Anonymous says:

    As he sat on the Mount of Olives, the last known magi was asked by his disciples,"[W]hat will be the sign[s] of... the end of [our] age [be]?”

    The great magi replied, "[Y]ou will hear of wars and rumors of wars... these things must come to pass... For nation will rise against nation, and kingdom against kingdom. And there will be famines, pestilences, and earthquakes in various places... [T]hese are the beginning of [humanity's] sorrows[, the beginning of the end]."

    All that you touch
    All that you see
    All that you taste
    All you feel.
    All that you love
    All that you hate
    All you distrust
    All you save.
    All that you give
    All that you deal
    All that you buy,
    beg, borrow or steal.
    All you create
    All you destroy
    All that you do
    All that you say.
    All that you eat
    And everyone you meet
    All that you slight
    And everyone you fight.
    All that is now
    All that is gone
    All that's to come
    and everything under the sun is in tune
    but the sun is eclipsed by the moon.

    "There is no dark side of the moon really. Matter of fact it's all dark."

  22. Numonic says:

    John Haskell said...

    Numonic-
    Why then during the greatest credit crunch in American history (1930-32) did prices not rise? In fact the price level fell approximately 25% during this period.

    When formulating your theories, do you take facts into account?

    I think the situation we(US) were in in the 1930s is the same situation China is in today. We were a creditor nation making our move to become a consumer/debtor nation just as China is trying to do right now. But when the producer decides to become the consumer, this causes a paradigm shift in the credit system. Some one has to be the producer otherwise there would be nothing for the consumer to consume. Anyway other nations credit tightened more than ours(US) did. The debt for gold for us(US) in the 1930s was like the US bonds China holds today. Those US bonds will default, just like the debt for gold defaulted during the 1930's and what will happen is China's currency will appreciate against those bonds just as the US dollar appreciated during the credit crunch of the 1930s.

    If you want to see how our currency will do today during this credit crunch you shouldn't be looking at US of the 1930s(we were a creditor nation then), you should be looking at the debtor nations of the 1930s, those nations hyperinflated.

    Of course you also have to take in to consideration supply and demand and this is why i think this paradigm shift is different from the 1930's and why i think this won't be a shift but a collapse of paper money and credit all together. See back in the 1930s there were more producer nations in the world than there are today. When the producer nations of today try to reap the fruits of their labor and make the move to major consumer, they will have a problem as there won't be as much producers ready to meet this demand as they will first be focused on producing and providing for themselves. This is one reason why the US dollar rallied during the 1930's because there was enough producers to meet the US' demand. Today that's not the case for China. Today the world is full of consumers and less producers(which is why there is slave labor as people have to be forced to work for little to nothing to provide for the consumers). When China tries to make this shift from major producer to major consumer, it will have a hard time finding things to consume as the rest of the worlds manufacturing sector is like and old engine in the cold winter. Everyone's currency will suffer devaluation. Credit globally will collapse. But I have faith that we'll make it through this as we have a larger world population and production will be encouraged due to the absence of credit. With the world working together producing, we'll grow our way out of poverty. production is growth. I don't think the earth was lacking products over the decades, the world was just lacking producers and the earth is very ripe for picking and I'm sure with the greater world population what we produce will be greater than anything the world has ever produced.

  23. Numonic says:

    Eric you see the dollar as the Titanic, I see it as a slave ship.

  24. Jane says:

    I still see when equity drops, USD go up.

    So this dollar-collapse theory is still unproven.

    Not to say that this blog is wrong, in fact I like this blog. But the reality is still that USD is still powerfull.

    Luckily I short euro yesterday (USD strengthen). If I short USD, now I will have been losing money.

    Marc Faber recently says He expect USD to go up for a couple of months because equity market is too hot lately. I think He might be right. Those USD collapse believer, better not to short USD right now, wait until year end..

  25. Numonic says:

    Jane said...

    I still see when equity drops, USD go up.

    Please don't fall for this trick the Fed is playing with the printing press. The credit markets are going to take a hit ending this charade and will send the USD down along with equity.

  26. Numonic says:

    You know what playing this currency market is like. It's like driving blindfolded down the highway at 100 mph with your seat belt off thinking you will be able to get your seat belt on just before you crash. Stop. Put your seat belt on now. Buy silver and gold now.

  27. Jane says:

    @Numonic,

    Well, for trader, the only thing that's important is how they can earn some money.

    The fact is still while equity suffers, USD go up.

    Personally I think stocks are expensive relative to their earning right now. So I am bearish on equity, which means I am cautiously bullish on USD.

    If you are a trader, will you buy Euro-USD at 1.4125 now? or will you sell?

    (Sorry if this question is too short-term)

  28. Numonic says:

    I'm not a trader so I can't say. I can't say there are any safe currencies right now. I'm just buying silver.

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