What Ben Bernanke and Peter Schiff Are Saying: Federal Reserve Will Be Keyboarding Digital Money Well Into 2015 or Two Years Minimum As U.S. Enters Another Recession With Higher Rates of Unemployment — Quantitative Easing For 2 Plus Years — Bubbles Going To Pop — This Time It Is Different — The Financial Crisis Or Collapse Will Be Much Worse — No Exit Strategy — Videos
Digital Report Ben Bernanke Hearing
Bernanke: September Tapering Not a Sure Thing
Bernanke tells Congress Fed flexible on bond buying
Ben Shalom Bernanke NOT Ready To Declare “Too Big To Fail” A Thing Of The Past
Peter Schiff Speaks At 2013 Las Vegas MoneyShow
Peter Schiff – US Hasn’t Had A Real Recovery Or Even A Real Recession Yet
Peter Schiff – Economic Predictions
Peter Schiff – Fed Will NEVER Stop Q E! They Can t The US Economy Will Collapse!
Next Fed Chair Bets Make ‘Hot Parlor Game’: Green
U.S. Fed balance sheet grows 7 straight weeks
The U.S. Federal Reserve’s balance sheet grew for a seventh week in the latest week as the U.S. central bank increased its holdings of Treasuries and mortgage-backed securities, Fed data released on Thursday showed.
The Fed’s balance sheet liabilities, which are a broad gauge of its lending to the financial system, stood at $3.495 trillion on July 17, compared with $3.462 trillion on July 10.
The Fed’s holdings of Treasuries rose to $1.962 trillion as of Wednesday, from $1.953 trillion the previous week.
The Fed’s ownership of mortgage bonds guaranteed by Fannie Mae, Freddie Mac and the Government National Mortgage Association (Ginnie Mae) increased to $1.235 trillion from $1.208 trillion from the previous week.
The Fed’s holdings of debt issued by Fannie Mae, Freddie Mac and the Federal Home Loan Bank system totaled $66.52 billion, down from $69.18 billion from the previous week.
The Fed’s overnight direct loans to credit-worthy banks via its discount window averaged $13 million a day during the week, compared with $14 million a day the previous week.
Is The Fed Really Tightening? Fed Policy in Two Charts.
The chart shows a hypothetical trajectory for the Fed’s bond and MBS holdings. Under the stock view, that trajectory will go through three stages, paralleling those of traditional interest rate policy:
- Quantitative easing: The Fed expands its balance sheet by buying Treasuries and MBS. Current pace: $85 billion each month.
- Quantitative accommodation: The Fed maintains its balance sheet; it buys new assets to replace older ones as they mature.
- Quantitative tightening: The Fed contracts its balance sheet by allowing assets to mature without replacement or, more aggressively, by selling them.
In this view, tapering is the final stage of quantitative easing. The Fed buys assets during tapering, but at a slower tempo. Tapering is not tightening.
That view is clear, logical, and elegant. But it utterly fails to explain why financial markets went haywire last week when Ben Bernanke and company talked about tapering.
One reason is investor expectations. The Fed has been trying to stimulate the economy not only through QE, but also by telling investors to expect easing in the future. Such forward guidance can be a powerful lever for monetary policy.
Last week, investors learned that QE might end sooner than they expected. In the stock view with expectations, that is monetary tightening. As illustrated in the second chart, future Fed policy would be tighter than financial markets had previously thought.*
This view likely explains some of the market reaction to recent Fed statements. But it’s hard to reconcile the magnitude of the movements. Suppose markets expected tapering to begin in January and now think September more likely. All else equal, that four-month difference implies a $340 billion reduction in the Fed’s ultimate portfolio. That’s something, but could that alone explain the sharp market response?
My sense it that something else must be going on as well. Some candidates include:
- Perhaps the flow of Fed purchases matters, not just the stock. This view appears much more common among traders than Fed economists. If anyone has a reference for a good articulation of this view, I’d love to see it. The flow shouldn’t matter in normal times—was the Fed tightening when the flow of purchases was essentially zero for decades before the recent crisis?—but these are hardly normal times. Perhaps the flow matters when you are at the zero lower bound?
- Perhaps world financial markets expected a much longer period of QE and are highly geared to Fed policy. If I am reading it correctly, that’s the view of Vince Foster who discusses the unwinding of the carry trade (ht Tyler Cowen)
- Perhaps something else also happened. Scott Sumner discusses one possibility: turmoil in China’s financial sector spilling over into U.S. markets.
* This definition of tightening compares the new expected trajectory of Fed holdings to prior expectations. Such comparisons are relative; in principle, one could equally say that the Fed announcement indicated that future policy would be less loose, not that it would be tighter. But for most purposes, it seems simpler just to say that future policy has gotten tighter. The same semantic issue exists in fiscal policy. If Medicare spending is scheduled to grow $35 billion next year, what do we call a proposal under which spending increases $30 billion? We usually call that a $5 billion spending cut since it’s a decline relative to an accepted baseline. But we should remember that Medicare spending is growing. The same seems true with early tapering. Tightening seems the cleanest description for most purposes, even though in absolute terms it is slower easing.
Condition Statement of Federal Reserve Banks July 18, 2013