The Fed's Dowry Fund Is Running Low, time to rev up the presses for
the wealthy self reliant, the rest of us can eat cake
http://www.suddendebt.blogspot.com/
there is a graph missing for obvious reasons. visit the site to view
the graph.
TUESDAY, APRIL 8, 2008
The Fed's Dowry Fund Is Running Low
If you assume that the Fed has nearly unlimited capacity to bail out
the US financial system, you better think again. A look at the size
and makeup of its balance sheet versus the "shadow banking system" is
enough to send ****vers down your spine. To wit, look at the chart
below (click to enlarge):
Data: FRB
After providing a very generous dowry to JP Morgan for marrying Bear
Stearns plus beauty salon money for the bridesmaids, the quality of
the Fed's own balance sheet has deteriorated rapidly. Holdings of
Treasury securities plunged from 90% to 65% of assets and will drop
further as more ugly spinsters come asking for makeovers.
Furthermore, its Treasurys now account for a low 3.5% of the debt
issued by the US financial sector, down from 8.5% in 1996. In gross
terms, the Fed's capacity to provide bailouts to the financial system
without resorting to the printing presses is 60% less than twelve
years ago. And this is before we account for the considerably higher
risk being carried by the financial system as a whole versus a decade
or more ago.
I leave the conclusions, once again, to the informed reade
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