Fed’s Balance Sheet Drops by $626 Billion from Peak, Cumulative Operating Loss Grows to $38 billion: Update on QT
Quantitative Tightening is starting to add up.
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The Federal Reserve has reduced its balance sheet by $626 billion since the peak in April 2022, with total assets now down to $8.34 trillion, the lowest since August 2021, according to the weekly balance sheet released today. Compared to a month ago, total assets dropped by $94 billion.
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This is a big milestone of the Fed’s Quantitative Tightening (QT): Total assets dropped by $1.01 trillion since peak-QE in April 2022, to $7.96 trillion, the lowest since June 2021, according to the Fed’s weekly balance sheet today.
In September alone, total assets dropped by $146 billion as another big chunk of bank-panic support unwound.
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Fuel prices right now, have nothing to do with "inflation." They reflect a new contrived scarcity, with relatively-static demand.They can only do it over a long period of time otherwise they will tank the economy. In the meantime they will increase the amount of acceptable inflation.
The first thing that needs to be done is get gas prices down to $2/gal and diesel down to $2.50 and inflation will decrease.
Treasury Secretary Janet Yellen has some explaining to do, according to hedge-fund titan Stanley Druckenmiller.
Yellen missed an important opportunity, Druckenmille says, by not issuing more long-dated Treasury bonds when interest rates were, in the shadow of COVID-19, near zero.
“Janet Yellen, I guess because political myopia or whatever, was issuing 2-years at 15 basis points … when she could have issued 10-years at 70 basis points or 30-years at 180 basis points,” the former hedge-fund manager said during a conversation with Paul Tudor Jones at the Robin Hood Investors Conference, a clip of which circulated Monday on X, the social-media platform formerly known as Twitter.
“I literally think if you go back to Alexander Hamilton, [Yellen’s approach represented] the biggest blunder in the history of the Treasury,” Druckenmiller said.
This omission seems even more egregious, according to Druckenmiller, considering that Americans refinanced their home loans at rock-bottom mortgage rates en masse, and corporations with sturdy credit ratings refinanced their debt.
“I have no idea why she hasn’t been called on this. She has no right to still be in that job.”
“When rates were practically zero, every Tom, Dick and Harry in the U.S. refinanced their mortgage … every corporation was extending their debt,” he said.
He then rattled off some alarming numbers to illustrate the consequences of not reining in spending.
“Here’s the consequences, folks. When the debt rolls over by 2033, interest expense is going to be 4.5% of GDP if rates are where they are now. By 2043 — it sounds like a long time but it is really not; it is 20 years — interest expense as a percentage of GDP will be 7%. That is 144% of all current discretionary spending,” he said.
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To be sure, Yellen wasn’t the only Treasury secretary to preside over this latest round of near-zero interest rates. Steven Mnuchin served as Treasury secretary under Donald Trump and didn’t, leaving office in January 2021, nearly a year after the global coronavirus outbreak was formally labeled a pandemic.
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The Fed’s Quantitative Tightening (QT) and the unwinding of the bank-panic liquidity measures continue on track: Total assets on the Fed’s balance sheet dropped by $89 billion in October, to $7.87 trillion, the lowest since May 2021, according to the Fed’s weekly balance sheet today.
Since peak-QE in April 2022, total assets have dropped by $1.10 trillion. ...
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Onto our call of the day, which deals with another worry — a wall of government debt that will be with us for decades. It comes from Bridgewater’s highly regraded co-chief investment officer Bob Prince, who was speaking at the Global Financial Leaders’ Investment Summit on Tuesday, hosted by the Hong Kong Monetary Authority.
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“The after effects of offsetting deleveraging and pandemic, you’ve had a massive wealth shift from the public sector to the private sector and that’s left the government with debt to GDP up from 70% up to 120%. And the particular vulnerability of that is in the debt rollovers and the gross issuance that you’re going to see in the coming decades . You’re stuck with that debt until you pay it off and that means you have to roll it over like anybody else does,” said Prince.
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A record-breaking share of auto loan applicants say they’ve been rejected for loans this year, according to the Federal Reserve Bank of New York.
Based on surveys collected in February, June and October, an average of 11% of automobile-loan applicants said they had been rejected, the highest yearly car-loan rejection rate since the New York Fed began tracking the figure in 2013.
That speeds past the previous record on car-loan rejections, which was set in 2020, when 7.9% of applicants said they were turned away from a car loan.
The potential potholes awaiting car shoppers were just one part of the New York Fed’s quarterly survey on consumer access to credit. Overall, consumer credit is tightening, the report found. Fewer people are applying to see what terms and rates they could get on cars, credit cards, mortgages and mortgage refinances.
Across the board, reported rejection rates for loans climbed while application rates dropped year to date. The report showed hints of households facing financial pressure.
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Pandemic-Era Excess Savings updates estimates of the remaining stock of pandemic-era aggregate excess savings in the U.S. economy, defined as the difference between actual savings and the pre-pandemic trend.
Pandemic-related fiscal support combined with a drop in household spending contributed to a sizable increase in household savings in the overall U.S. economy. Aggregate personal savings rose rapidly, well above its pre-pandemic trend.
As U.S. economic activity began to recover, households utilized their excess savings to support spending. By late 2021, household savings dipped below the pre-pandemic trend, signaling an overall drawdown of pandemic-related excess savings.
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Ya think? Now, there is a penetrating glance into the obvious! At last, it should be obvious, but apparently it isn’t. Because that is how you get to that hyperinflation if that's really where you want to take this. (See the video linked to below about the five worst hyperinflation train wrecks in history.)“It’s possible that we’re in the middle of [an] infrequent but very significant generational regime shift. And it’s possible that we’re not going back to zero rates,” said Jon Burkett-St. Laurent, senior portfolio manager at Exencial Wealth Advisors.
Did anyone else notice the Chairman of the Federal Reserve casually admit recently that our central bank has no long-term strategy for handling the banking crisis? Jerome Powell was asked recently ... what would happen in March of 2024 when loans begin coming due from the Bank Term Funding Program (BTFP). He literally said that they hadn’t thought that far ahead.
Powell & Co. created a $100+ billion bailout facility with no exit strategy, and now they talk about it like it’s nothing. The attitude extends even to major banking houses like Bank of America, which has openly admitted that it has hundreds of billions of dollars of unrealized losses on its books but expects to realize none of them. In other words, everyone, the Fed included, is acting like the BTFP is a permanent facility.
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... The BTFP is loaded with long-term securities that will likely pay below-market rates for 2 to 30 years.
This has created a rachet effect with the new facility, where banks dumps securities on the Fed but can never really pay off the loans before the collateralized assets mature. That has pushed the BTFP to $114 billion, and it’s poised to continue creeping higher each time banks need cash and can’t liquidate the rest of their depreciated assets, except at a loss.
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Total outstanding loans in the Federal Reserve’s bank bailout program jumped by just over $5 billion in November.
There was a sudden spike in banks tapping into the bailout program during the first week of the month with financial institutions borrowing $3.87 billion from the Bank Term Funding Program (BTFP). There was another surge in borrowing between Nov. 15 and Nov. 22, according to Fed data.
As of Nov. 22, there was $114.1 billion in outstanding loans in the BTFP bank bailout program.
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So the average interest rate that the government is paying on all its interest-bearing debt – much of it issued years ago with much lower coupon interest rates than now – has been rising from the historic low of 1.57% in February 2022 to 3.05% in October, according to data from the Treasury Dept.
This average interest rate will continue to rise as new securities with higher interest rates replace maturing lower-interest rate securities that were issued often years ago, and as all the newly added debt is piled on at the current higher interest rates.
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Federal Reserve Bank of Dallas President Lorie Logan said the US central bank may need to slow down the pace at which it shrinks its portfolio of assets amid scarcer liquidity in financial markets.
While liquidity and bank reserves in the financial system are still more than ample, she said, individual banks could start to see liquidity constraints, especially as balances in the Fed’s overnight reverse repurchase facility fall. Logan said it’s now “appropriate” to begin discussing the parameters around a Fed decision to slow the pace of its balance-sheet runoff.
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This has been in the works for a while and has come out in bits and pieces, but today the Fed made it official in the FOMC meeting minutes: It doesn’t know how far it can take QT without blowing up stuff, but it wants to reduce its balance sheet as far as possible without blowing up stuff. QT has already reduced the Fed’s balance sheet by $1.34 trillion. And so far, nothing has blown up. But last time it did QT, the repo market blew up.
The issue with withdrawing liquidity from the market via Quantitative Tightening is that this liquidity is taken out through a couple of drains that are close together – the Fed’s roll-off of Treasury securities and MBS – but liquidity has to flow there from all directions, and it may drain out faster in one corner, and that corner then runs out of liquidity and blows up, while there is still excess liquidity in other corners.
Yields solve that problem normally. The corner that is running out of liquidity will be willing to pay higher yields to attract liquidity from the corner that has excess, but the process is not instant; it can take too much time, and then something runs out of liquidity and blows up while at the other side of the markets, there is too much liquidity.
This hasn’t happened yet in QT-2, which is still running “smoothly,” as the FOMC minutes said today.
But it happened with QT-1 in September 2019, when the repo market blew out because banks were running low on excess liquidity and refused to lend to the repo market, and a repo-market panic ensued and threatened with contagion, and so the Fed stepped into the repo market and helter-skelter doused it with nearly $400 billion in liquidity, which raised its balance sheet again, thereby undoing a big part of QT-1. And that is to be avoided this time.
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With the U.S. national debt surging above $34 trillion, many prominent investors and financial leaders are raising alarm over a looming crisis. Even Federal Reserve Chair Jerome Powell has weighed in expressing concern that U.S. debt is unsustainable. However, the U.S. central bank is a major part of the problem, according to Charles Payne, Host of Making Money on FOX Business Network and the author of ‘Unbreakable Investor.’
Powell issued his own candid warning on U.S. debt during CBS’s ’60 Minutes,’ criticizing lawmakers for effectively borrowing from future generations with their unsustainable fiscal policies and stating that it was time for “an adult conversation.”
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Total assets on the Fed’s balance sheet dropped by $91 billion in February, to $7.54 trillion, the lowest since February 2021, according to the Fed’s weekly balance sheet today.
Since the end of QE in April 2022, the Fed has shed $1.43 trillion, as quantitative tightening continues on track.
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It's been baked in the cake for awhile now.Various tweets echoing dollar doom:
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