Nearly $7 Trillion in Securities, $2 Trillion Mortgages
As of August 26, 2020 the Fed’s Balance Sheet is nearly $7 trillion total of which $3.7 trillion are notes or bonds, and nearly $2 trillion in mortgages (Fannie Mae, Freddie Mac, or Ginnie Mae).
No End in Sight to Fed’s Mortgage Buying Spree
Bloomberg reports No End in Sight to Fed’s Mortgage Buying Spree.
Key Points
- The Fed has snapped up $1 trillion of mortgage bonds since March. It bought around $300 billion of the bonds in each of March and April, and since then has been buying about $100 billion a month.
- The Fed now owns almost a third of bonds backed by home loans in the U.S.
- Buying the securities has pushed mortgage rates lower, with the average 30-year rate falling to 2.91% as of last week from 3.3% in early February.
- Morgan Stanley analysts pointed out in late March that the buying was running at eight times the pace seen in prior episodes of Fed purchasing under programs known as quantitative easing.
- Just before this latest round, principal payments from its mortgage bond holdings had whittled that down to 21%, but it has now increased back to 30%.
- If the Fed maintains its current buying pace, it will again own 34% of the mortgage universe by year’s end.
Fed’s Balance Sheet Expansion Over Time
Questions of the Day
- Does the Fed have everything under control?
- Is the Fed totally out of control?
Mish
I’m trying to understand. Fannie and Freddie own the mortgages, but they sell mortgage-backed securities and that’s what the Fed buys.
“If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.”
The Fed is juicing the markets like a Heroin pusher and the markets are junkies. Constantly needing that next fix or withdrawal syndrome sets in. The heroin is getting cut more and more making them junkies needing more to catch the dragon. Is the market gonna OD or is the heroin gonna become worthless junk.
I don’t know what’s going to happen, but I want to get my kicks in before this whole $h!+ house goes up in flames
If you take a look at Trump’s career-making deal in NY in the 80’s, you will see that the exact same scenario is playing out now…on the National scale. Only a matter of snatching up properties rendered massively cheap via legislation. Trump and/or business associates will biy those worth holding over the next couple years. It is PRECISELY the same manuever.
Love the convo, folks. I don’t think you can look at the balance sheet without looking at assets along with the liabilities. When you start to frame the assets of the U.S. (not income/GDP) I think we still have a long way to go. In a similar context, I think neither presidential candidate would intervene militarily should the Chinese want to exert Hong Kong-esk control over Taiwan/South China Sea or maybe make a move on the Korean Peninsula. That doesn’t mean that we wouldn’t be open to economic concessions like forfeiting their Treasury/U.S. debt holdings.
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Most people are oblivious to the fact that the FED can go bankrupt, and in fact did during the great depression necessitating the confiscation of all Citizen owned gold to recapitalize the FED. If you do not know the history of Congressman McFadden, who was Chairman of the House Banking Committee at the time, you should.
What does this mean? What are the potential consequences? Cheap money fueling another housing bubble? The government getting stuck with foreclosed properties? Is it a threat to the dollar as this could mean massive losses for the government?
The rise of the super corporation and the death of small business. Japan has had just a few Fortune 500 companies in the last 30 years. Easy money gives corporations the ability to buy up competition before they start to consume market share.
Welcome to the era of super corporations.
The government NOT getting stuck with foreclosed properties, because The Fed debases people enough to nominally prevent forclosure, is the problem.
The government getting even every single house in the US by way of foreclosure, OTOH, is no bad thing at all, as long as they simply turn around and firesell it.
Same population, same houses, debt gone. That’s a good outcome.
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This just seems fitting.
Sounds like a simple way to remove the right to private property… Jefferson did warn us of such central banking scams.
trump doesn’t want to be hitler… he wants to be stalin
He did offer a warning, just not the one popularly attributed to him:
” “And I sincerely believe with you, that banking establishments are more dangerous than standing armies; & that the principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale” “
“to be paid by posterity”
And therein lies the key to end the swindle: Don’t.Effing.Pay.Period.
What about the percentage of mortgages that are insured by the government entities like FHA and VA? Also, I am very curious how the percentage of NEW government entity subsidized mortgages has been changing (e.g. Fannie, Freddie, FHA, VA) and whether that share of the market has changed much in 2020.
Get real,that’s there “official” balance sheet,the real balance sheet,the one’s that nobody but the banksters and elites sees is well north of a quadrillion dollars and rising a trillion every single day. That 7 tril is chump change,they pump more than that into the stocks in a month!Thefedhas been buying everything since 08…Do the math!
“Thefedhas been buying everything since 08…Do the math!”
…
No. Stock buybacks + low volume + recent rabid daytraders explain the move.
Federal Reserve certainly encourages … the market takes it from there.
The stock market will collapse soon enough. I was around late 1990’s. The past year or so has that feel (actually worse). Result will be same … or worse.
Oh, and before someone steps forward with the nonsense “The Fed will buy it all up” … Will Not Happen.
I believe the Fed will buy whatever it needs to, to maintain the social fabric.
So do I.
Their buying / propping of stocks only further promotes wealth inequality.
Why they won’t do it (in any large scale manner).
They’ve already said they’ll do whatever it takes, right?
Just… when do they go from thinking “we’re doing whatever it takes” to “we’re through the crisis, now we can back off”? It seems with the 2008 crisis that occurred in 2015 and now J. Powell is saying they made a mistake in tightening?
Fed started buying MBS in 2008 timeframe in order to fight the housing crisis and now, twelve years later, they’re still doing it? How can anyone say our economy was “great” at a single point between then and now?
Interest rates were much higher in the late 90’s and there’s not much hope now of rates going back up anytime soon. So, I wonder where folks will put their money if they sell… I’m starting to think what’s driving the market without end is it’s the only game in town. What do you think will start the sell off? It hasn’t been tied to fundamentals for a long time.
I’m in the deflation camp.
Assets are priced on the margin. All assets levered (bought with debt). I fully expect a lot of debt to go bad … dragging down asset prices.
Berkshire Hathaway sitting on almost $140 billion in cash … waiting …
I get stuck in thinking that if the money supply is increased enough then at some point there would need to be inflation. Add $250T tomorrow (intentionally exaggerated) and prices would need to go up, no? If everyone were given a share of that $250T equal to their net worth, then we would all be able to afford our debt… I realize this isn’t something that will happen simply because of how radical it is… am just waiting for someone to point out what the biggest problems with it would be.
I’m hoping to use the resulting low rates to refi one more time to reduce my debt service, and possibly add another property, depending on whether I can find something that is still within reason….getting harder to find value these days. I’ll probably wait and see if RE prices take a real hit..maybe next year. My plan is to use the Fed’s manips if it benefits me. But only to buy tangible assets…no stocks or ETF’s.
The Fintech Debt Trap
Online lenders are preying on desperate borrowers and could trigger a new consumer financial crisis https://theintercept.com/2020/08/30/fintech-debt-personal-loans-economic-crisis/
So you don’t repay a personal loan and declare bankruptcy. You probably shouldn’t be borrowing anyway, and as lenders are willling to relax lending standards, you, like Argentina, or Tishman Speyer, can in all likelihood, borrow again.
Multiplier effect – for every dollar the Fed puts back into the market through asset purchases, the stock market goes up by $10. Its called Trumponomics….
In the absence of coherent fiscal policy, it is the only thing the Fed can do. Unfortunately it is causing a stock market bubble, as the Fed’s liquidity injections have to go somewhere. Meanwhile, on main street….
Once the valuation of stocks transitioned from discounted dividends to discounted expected future earnings, espcially for companies with zero present earnings or even revenue, fundamental value went out the window. Price is merely subject to the law of supply and demand, that’s all. Lots of Fed injected liquidity increases demand. Yield hunger in the low interest rate environment increases demand. Valuation based upon P/E ratios is not scienctific law, after all, just a measure of historical behavior. The rules have clearly changed.
How about other assets? I deal in collectibles; prices seem high.
Trump and the treasury are out of control.
TheDemocrat controlled Congress wants to spend even more…so I would say the entire federal government is out of control.
Real question: why are mortgage rates still at 3% when treasuries pay less than half of that?
Mortgages need to be bundled and serviced … costs $$ (and, oh yeah, lenders need to make beaucoup profit).
Thanks, makes sense, just feels like a pretty large spread … after all the initial mortgage setup fees.
In the Soviet Union it was almost 100%, so it’s on the right trajectory.
Yes, it’s funny how all the people on the right who hate “socialists” don’t seem to realize that their lifestyles, economy, stocks, home, and job are all supported by massive government spending. How is that not “socialism”?
You guys are smart, really, really smart. Otherwise you wouldn’t be reading Mish. He got out of Illinois. You need to get out of USD, For the children.
Anyone know is there a good site that is a primer on the effects of the Fed buying bonds, securities and mortgages?
Yes, all silliness aside for a moment. (Mish brings out the best in people.) That I can document, I have been reading the on-line financial press since 2003. I save a copy of most articles I find interesting, and want to preserve for my historical record and reference, (since content can be made to disappear from the internet). I have a log of about 27,000 articles that I have read from just about every author out there. I know that sounds like a lot, but it’s only an average of about 4 per day for 17 years. Anyway, based on those bona fides, if you want to believe me on it, I would recommend putting serious time into reading the past few years work of John Hussman (hussmanfunds.com), and Jeffrey Snider (alhambrapartners.com). I have no affiliations, (and Mish will probably want to delete this, as is his prerogative), but I find their analysis and commentary compelling, logical, and well supported with data and the historical record. Otherwise, if you start reading widely enough, you will eventually discover what you are looking for.
Now, back to the giggle factory.
I like this guy: https://youtu.be/oLhO7tIAtoY
This blog provides a broader view of the economy but has been tracking things since before the 2008 crisis. Interesting insights. https://thegreatrecession.info/blog/
Everyone head to the authority on these matters. Mises.org
Also for your firends,
Thank you
Eventually, money printing produces negative growth. Looks like we have arrived at our destination.
Real yield on 10Y treasuries are negative now. That is exactly: negative growth, i.e. destruction of capital, i.e. eating the seed corn. I’m sorry but we won’t have a modern economy for long if it’s impossible to make any interest on one’s savings.
Yield below unmanipulated market yield, is already destruction of seed corn.
Negative yield, signals destruction of seedcorn at a rate faster than all combined natural forces pulling forward; technology, human skills, process improvement and population growth; are able to make up for.
Yes.
You might appreciate Keith Weiner’s ideas around this: “We have said many times that the (seemingly) endless rise of asset prices is just the process of capital consumption. It is the conversion of one party’s wealth into another’s income, to be consumed.”
Nice article. The example of investing gold to (speculatively) mine gold, makes things very straight forward and clear.
“To own the world in fee simple.”
“Controlling our currency, receiving our public moneys, and holding thousands of our citizens in dependence, it would be more formidable and dangerous than the naval and military power of the enemy.”- Andrew Jackson
Still true today, even if the response back then to his not renewing the central bank charter was for States to create their own funny money and create huge asset bubbles
Powell, are you pondering what I’m pondering?
Yes, I think so, Brain, Google Translate is a great tool to re-brand Fed policy into sophisticated-sounding Japanese.
wonder if and how they hedge that risk both duration and convexity. being they are long fixed income they can’t really go short treasuries. do they need to mark to market and hedge at all?
I think we’re turning Japanese. I really think so.
私たちは今日本人です、私たちは今日本人です、私は本当に知っています。
私たち日本人なら、巨大なバブルを始めたばかりです
That may actually not be such a bad thing. They have high standard of living and almost zero inflation.
Problem is, they also have industry, as well as at least a few competent people in charge of something. Not all idiots al the time everywhere always, as is the case here and in Argentina.
Hence we, like Argentina, are in no position to emulate the Japanese, no matter how nice it obviously is to live in a place practicing basic literacy in high places.
The Japanese build world class product at competitive prices. “We” “make money from our home”, from “our portfolio” and from kangaroo courts.
The former takes competence. The latter none whatsoever (which is the point). Whic is reflected in who controls scarce resources in each respective country. And hence, how well, or in our case not so, those are employed.
Japan’s standard of living is lower than the US based on many metrics:
It would be a terrible thing. Count me out!
“No sex, no drugs, no wine, no women
No fun, no sin, no you, no wonder it’s dark”
Please!
Love that song 🙂
Where did the 80’s go?
Japanese? Or 1930s Germany? The German economy in the 1930s was based on paper debt, large public works projects, and massive military spending. It created a fake economy which needed war to keep going. War is a good way to steal things. But it didn’t turn out well.
“The Fed’s balance sheet is ballooning out of control.”
…
Relatively flat past 3 months and mostly govt backed stuff. The corporate / muni stuff (bought via SPV) not large scale. If this changes … or equity purchased … then I will worry (a lot).
I see you are convinced by what I am convinced is a temporary lull
Not necessarily.
I’ve repeatedly said here I think balance sheet will ultimately be in the $10 trillion to $15 trillion range before this crisis over. But hope / think their hands will be full buying treasuries / mbs … I don’t think they will purchase corporate / muni in meaningful numbers.
“…before this crisis is over”.
Is this a new figure of speech, or new testament?
Why should it matter if the government is buying government backed paper rather than commercial paper or stocks? The Rubicon has been crossed already, as the US Fed has said they will do whatever it takes to prevent in their mind a deflation. The central bank of Japan already has bought 50% of all stock index funds in Japan, and if the Fed does the same, I doubt anybody would be shocked. Horse has left the barn long ago.
And that will neither generate their desired inflation or economic growth. So, I see your $15 trillion and raise you to $30 trillion. Do I hear $50 trillion? Anyone, anyone?
50 trillion is the next crisis. We will get close to the 14 trillion this one.. The nuclear crisis is two away…
Pretty fair assessment for now. I think the markets may crash again soon and all bets are off then. A few big Wall Street players are gonna make out bigly again by shorting the hell outta everything and the FED will run to the rescue to bail out the risky pension investments. Rinse, repeat. A few more cycles of this and the dollar will be toilet paper. https://wolfstreet.com/2020/08/20/the-feds-asset-purchases-week-10-since-peak-qe/
I bet the Fed sees it as 2/3rds left, before there is a “problem”.
Welcome to MMT.
California failed to pass either the wealth tax or tax increases on millionaires.