Where’s my QE?

Quantitative easing, or the willy-nilly printing of money, supposedly started in September of 2012 at the rate of 40 billion a month. Then in December, another 45 billion in money printing was supposed to kick off. By now, we should have added at least 200 billion to the Federal reserve balance sheet.

But take a look at this.

The balance sheet has shown some increase, but only about 100 billion dollars worth. It seems that the first half of the month is spent buying, while the second half of the month is spent selling, basically holding the line. In fact, over the past year, the Federal Reserve Balance sheet has been totally flat; $2.92 Trillion in January 2012 and $2.92 Trillion today.

People worried about rampant money printing (like me), should be a little surprised to see the Fed’s balance sheet flatlining like that (and believe me, I am suprised).

QE1 and QE2 are clearly visible, but QE3 and QE4 are almost undetectable.

So what gives?

The impact of unrestrained money-printing is unquestionably recognized by professional central bankers, they MUST know this. After having witnessed the basically-zero effect of the first two rounds of money printing, its entirely possible that guys like Bernanke are having second thoughts about the supposedly positive effect of money printing, and are unwilling to risk further debasement of the currency.

There is another possibility, since the Fed is composed of a large number of clever dudes; they may be using creative accounting to hide the rapidly increasing money supply.

So, heres their balance sheet with week over week changes.

It appears they are basically shuffling stuff around to fund their 85 billion a month in purchase. The big move was selling 95 billion in central bank liquidity swaps to buy 88 billion in mortgage backed securities.

A central bank liquidity swap is where a central bank (lets say Estonia), sells a bunch of its currency to the Fed in exchange for dollars. That is to say, the Fed buys their dollars, and this shows up as an increase in their assets. At a later date, Estonia buys their money back, reducing the balance sheet, reducing the balance sheet.

So, as our loans to foreign countries mature, we shift the loans to our domestic banks to purchase mortgage securities, with no net increase in the money supply. It seems like this should raise foreign interest rates while dropping domestic interest rates.

I’ll need to have a look at the chief beneficiaries of the mortgage security purchases to see where that 88 billion a month is really going, but my suspicion is that they are going to Treasuries, since that is the gentleman’s agreement between the Fed and the megabanks. So, foreign central bank interest rates may increase to keep US government borrowing rates low.

So, without being immediately, brazenly inflationary, the Fed seems to be continuing the game of transferring its printed money to the Federal government via the megabanks. Nothing new here, though the QE program appears to be a transfer program, rather than a money-printing operation, which should help keep a lid on inflation.




Published in: on January 7, 2013 at 12:02 am  Leave a Comment  

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