US Fed Corp
There’s news today that the US Fed’s balance sheet has now hit $4 trillion dollars, largely the result of printing money at over $1 trillion per year for a few years (as you will recall from last Wednesday’s 2nd graph). What is even more concerning is that they only have a capital base, or equity, of a mere $55 billion. If that seems like a lot, consider that if the value of their asset portfolio dropped by only 1.3%, they would lose all their equity capital. Last week too we saw the biggest offload of foreign held Treasuries (their ‘assets’) on record at $104.5 billion in one week. Keep in mind without foreign buyers the Fed needs to buy its own bonds (ala QE) at a time when it is trying to taper. The Fed meet today and tomorrow and given some conveniently good economic news yesterday (hence last night’s share rally and gold price drop) they look certain to continue to taper. The trick will be for how long can they live without it?