The Fed's MBS holdings have grown to $2.3 trillion as of July 2024. QE Never Ended. It Accelerated.
In Clown World We Wait for Federal Open Market Committee to announce their Designs they Decided Years Ago. Pixy Predicts a Rate Cut of 25 Basis Points today.
The increase in the Federal Reserve's MBS holdings from $500 billion to $2.3 trillion, despite the official end of Quantitative Easing (QE) programs, is the latest Federal Reserve Botched Embarrassment.
The Federal Reserve is as good at protecting the economy as our Secret Service is as good as securing a roof with clear shot to President
This growth suggests that the Fed has continued to maintain or even expand its MBS portfolio through various means. Possible explanations include:
Reinvestment policy: The Fed may be reinvesting principal payments from maturing MBS back into new MBS, maintaining the size of its portfolio.
Targeted purchases: The Fed could be making selective MBS purchases to support market stability or address specific economic concerns.
Extended wind-down: The process of reducing the Fed's balance sheet might be occurring more slowly than initially anticipated.
Market interventions: Periodic interventions in response to market stress or liquidity issues could contribute to the ongoing growth.
This situation raises questions about the Fed's long-term strategy for its balance sheet and its impact on financial markets.
The Federal Reserve employs hundreds of PhD economists. Specifically, the Federal Reserve Board employs more than 500 researchers, including over 400 PhD economists, who work on a diverse range of economic research, analysis, and forecasting for the Board of Governors and the Federal Open Market Committee (FOMC) .
This begs the question what do these 500 researchers research?
1. Do they research the impact of 35 Trillion dollar debt?
2. Do they research that most of the World is Dumping US Treasuries?
3. Do they research “sound bites” on how to bash on gold?
4. Do they research how to conspire with Military industrial complex to hide all the silver from civilians though the Silver was mined on public lands?
5. Do they research how to all say the word “transitory” in unison?
6. Do they research how to fake job numbers?
7. Do they research how the genius idea of negative interest rates for over a decade would work out?
8. But in this case it appears they have been busy researching how to continue QE but tell everyone they are tightening.
JPMorgan Chase's role in holding mortgage-backed securities (MBS) for the Federal Reserve:
The New York Fed has exclusively used JPMorgan Chase as the custodian for more than $2.3 trillion of the Federal Reserve's MBS for the past 15.5 years.
This arrangement began during the 2008 financial crisis when the Fed announced plans to buy $500 billion in MBS backed by Fannie Mae, Freddie Mac, and Ginnie Mae.
On December 31, 2008, the New York Fed signed a contract with JPMorgan Chase to be the sole custodian of the securities bought under the MBS program.
The contract has been amended several times: April 1, 2010; April 26, 2011; April 17, 2014; and January 30, 2017.
The Fed's MBS holdings have grown from the initial $500 billion plan to $2.3 trillion as of July 2024.
This increase occurred despite the official end of Quantitative Easing (QE) programs, suggesting ongoing MBS purchases or reinvestment of proceeds from maturing securities.
JPMorgan Chase appears to be providing various services beyond just custodianship, including transaction fees, cash management, security lending, and benefit payment services.
The exact amount JPMorgan Chase is earning from this arrangement is unclear, as the New York Fed redacted the fee amounts in response to a Freedom of Information Act (FOIA) request.
This arrangement has raised concerns due to JPMorgan Chase's past legal issues, including admitting to five felony counts brought by the U.S. Department of Justice during this period.
The New York Fed's handling of the FOIA request, including delays and redactions, has prompted plans for a formal complaint to the Federal Reserve Inspector General.
I guess if you have conflicts of interest and transparency problems you have two choices
a. Paper it over
b. Cover it up with 450 Ph.Ds
The relationship between the Federal Reserve and JPMorgan Chase is like the Depeche Mode lyric “Let’s Play Master and Servant”
Why you need Gold and Silver Now
When Too Big to Fail Banks Fail
Their quadrillion plus Derivative exposure is covered by The Villagers
The Laws now stipulates that via a legal term called “security entitlement” that our assets can go into a collateral pool
Then an official department made up by the 450 Ph.Ds ,called the Depository Trust and Clearing Corporation (DTCC) , gives the money to the Too Big Too Fail Banks
You did not vote on this
The 450 Ph.Ds invented it
But you are an unsecured creditor so the 450 Ph.Ds did give you a tip of the hat. Rest assured villagers have a significant role
Too Big to Fail Banks, Unrealized Losses, Commercial Real Estate Exposure, BTFP ended, FDIC Not Adequate and How to Stop the Dominoes
Access to the General Collateral Pool
Over the past 30 to 40 years, significant changes in laws have transformed the ownership of financial assets from direct legal ownership to a concept known as "Security Entitlement." This means that in the event of a failure of a too-big-to-fail (TBTF) bank, assets such as mutual funds, 401(k)s, IRAs, and pensions are pooled into a general collateral pool. This pool is used to bail out the derivative books of the big banks first, before any remaining assets are returned to individual investors.
Protecting Big Banks' Derivative Exposure
The derivative exposure of TBTF banks is enormous, often running into quadrillions. In the event of a financial collapse, the Depository Trust and Clearing Corporation (DTCC) steps in to manage these exposures. The DTCC acts as a central clearinghouse, ensuring that the derivative transactions are settled even if the underlying financial institutions fail. This mechanism is designed to prevent a domino effect of failures across the financial system.
Citizens as Unsecured Creditors
In the current financial system, citizens are considered unsecured creditors of the DTCC. This means that in the event of a financial collapse, individuals' assets, such as bank accounts, 401(k)s, and brokerage accounts, are not prioritized. Instead, these assets are used to secure the obligations of the TBTF banks first. Only after the banks' derivative exposures are covered, any remaining assets might be returned to the individuals, which is highly unlikely given the scale of the derivative market.
Role of the DTCC in a Derivatives Collapse
When the derivatives market collapses, the DTCC plays a crucial role in funding the TBTF banks. All assets that individuals believe they own are effectively pooled and used as collateral to stabilize the financial system. The DTCC ensures that the settlement of derivative transactions continues, thereby preventing a complete meltdown of the financial markets. However, this process often leaves individual investors with little to no recovery of their assets.
Marcel Kalinovic states,
“The transformation of financial asset ownership and the mechanisms in place to protect TBTF banks have significant implications for individual investors. Understanding the role of the DTCC and the concept of Security Entitlement is crucial in recognizing the potential risks and exposures in the current financial system.
There's currently a Lehman Brothers repeat happening, & the majority of Americans are completely oblivious. The BTFP is very quickly draining huge amounts of liquidity from the financial sector as banks repay their loans. Fed BTFP stopped issuing new-loans on March 11, and all banks must repay their loans within 12 months of the loan inception date.
Many loans were made in the months prior to March. Currently the BTFP allows banks to borrow against their bonds at their original value, called par-value. Now the value of these bonds has dropped significantly due to increased interest rates devaluing them. But since they were loaned out for par value, it artificially cooks the books to make their balance sheets appear stronger than reality.
Lehman brothers did this and obscured over $50 billion in unrealized losses until it was too late. The Fed values these securities at par, allowing banks to borrow more than if the securities were valued at market prices.
This helps banks avoid selling securities at incredible loss, which would hurt their balance sheets and initial margin collateral, artificially preventing margin calls. By borrowing at par value, banks maintain liquidity without realizing losses on their securities portfolios.
However, this doesn't change the fact that the securities have unrealized losses, only temporarily supporting bank liquidity and stability. when banks had 10 year bonds that were purchased at 1% interest rates, when rates hit 5% they lost -50% in value, the Fed gave them .100 on the $1 in BTFP loans, thus making it as if the losses temporarily hadn't happened.
Even though bonds have lost incredible amounts over the last 18 months due to increasing interest rates, Banks used securities, like U.S. Treasuries, as collateral for loans from the Federal Reserve at the BTFP. Similarly, today they're still able to use par value in the RRP reverse repo program for overnight bond loans. Today's RRP usage from MMF was only $367 billion in overnight loans.
This is a stark contrast to the highs that the RRP achieved 12 months ago, of over $2.5 trillion per day.
This is excess cash that has been used by the US Treasury to soak up T-bond issuances, which is an indirect form of yield-curve control. The demand for T Bonds is very low from other countries central banks and dropping like a stone in water. Without the RRP money from money market funds, T Bonds will go no-bid causing further drops in the bonds market. Furthermore this means that the once massively inverted 2 year over 10 year yield curve has become less-inverted due to the use of money market fund's excess cash parked in the RRP to buy the US T bonds by the Treasury Sec Yellen. Yield curve inversion means the difference of the 2 year US T-bond and the 10 year.
Usually the 10 year is worth more of course but when the 2 year is worth more than the 10 year bond, this is an inverted yield and that only occurs during recessions and stock/bond market corrections. Would you lock your money into a bank CD at a higher rate for 2 years opposed to 10 years?
This almost never happens unless there is a recession, but there'd be little reason to lock-in for less money for 10 years. The only reason this occurs is because economists and finance experts believe that the US economy will be stronger for the 2 coming years and weaker over the following 8 years, making the long-term look bleak for a variety of obvious reasons we can discuss in a long-form video.
All of the above allows major banks to look more well-capitalized and stable than actually the case, the US Treasury to issue bonds when there is reduced demand, and prevents banks from becoming margin-called or having to fire-sell assets to increase their cash-position. This temporarily delays losses in stocks, bonds, crypto, real estate, and other assets. As the excess liquidity in the financial markets is drained, then these losses will accelerate. Eventually they will realize losses as banks repay their BTFP loans.
They'll need to sell off other assets like stocks in order to maintain their initial margin and regulatory capital requirements on short-positions in the precious metals and other equities markets. The Fed is between a rock and a hard place.
Raising rates in Sept would reaccelerate inflation much too quickly, increasing home values, automobile values, oil/gas, grocery prices while further devaluing the dollar and causing them to have to raise rates again in the near future. Markets would melt-up.
Leaving rates unchanged would further increase unemployment, losses in commercial and res. real estate, corporate bankruptcies, melt-downs in stocks/bonds/crypto/RE and allow them to blame these losses on the election of Donald Trump as president. But this is what they need to do to prevent inflation from raging hotter. The sad thing here is that the Fed is aligned with big-banks and doesn't actually care what happens to the middle-class.
Expect them to do what benefits them the most. Markets are pricing in about an 83% chance of rate cuts this Sept. Should they cut? All signs point to NO. But it benefits the Fed and banks for a Sept rate cut, so I'll let you ponder on that. Seeing as it would benefit them to cut, do you suspect they will do this and then try to blame Donald Trump for increasing inflation next year?
All signs point to YES. Remember that $50 Billion in losses I mentioned above for Lehman? Well today, banks used $85 billion to borrow over $170 billion of fair-value assets (Par value). Approximately 95% more than their actual value MUST be repaid soon.
They used that $170 billion to leverage toxic financial derivatives with some gains, and some losses. The outcome will be seen in the coming months. The definition of the word "imminent" is subjective. For you it may be 1 day, for others 1 hour, for others 1 year, etc. Consider the "big picture" in financial markets. This is Lehman brothers on steroids. Margin calls imminent.”
Final Recommendations
Buy physical Silver
Buy physical Gold
Keep reading here on our recommendations for Gold leveraged
Later today we will unfurl the Larisa Sprott YouTube video where we discuss how Silver solves 5 of the biggest problems we face such as War, Debt Crisis, Inflation, Recession and even Crime.
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