Thursday, November 4, 2010

FED holding of treasurys will surpass China AT THE END OF THE MONTH

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As is all too well known by now, starting over the next few days, the Fed will commence purchasing $75 billion in Treasury securities monthly until the end of June, and will buy an additional $35 billion in Treasurys to make up for declining holdings of MBS (due to repurchases).

What is certain is that on June 30, the Fed's balance sheet will have $2.68 trillion (or more) in holdings, of which $1.77 trillion will be in Treasurys, compared to the $840 billion today. What is also certain is that the Fed will not be able to stop there. Which is why we have extended the projection period through January 2012. At that point the Fed will hold $2.6 trillion in US Treasuries, or roughly 25% of total US marketable debt at that point.

Incidentally, nowhere do we assume that the Fed will have launched QE 3, 4, and so forth, over the next 12 months, even though we now estimate the probability of America becoming an exponentially self-monetizing, Weimar-type case study in hyperinflation at over 50%.

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