QE May Be Over, But the Fed’s U.S. Debt Hoard Is About to Soar

  • Anyone betting against the asset markets in the long-term will face an uphill battle.
  • The Alt-financial media continue to swing and miss (by intention?)
  • Another alt-financial non sequitur. If money growth and U.S. Treasury levels (monetary assets) are set to continue spiraling higher, how can anyone conclude that the asset markets will collapse?
  • How can the dollar (and all others) be debased on a wholesale level, yet everything priced against it, especially assets, falls in relation?
  • I submit the current Fed balance sheet growth estimates are still too low and that as time moves forward, they will be revised higher. They can’t dump it all on us at once.

As soon as next year, analysts say the Fed will resume large-scale buying of debt securities — this time just U.S. Treasuries — in amounts that may ultimately exceed its crisis-era purchases. According to an estimate by Wells Fargo & Co., the central bank’s balance sheet will rise past its historic peak as it adds over $2 trillion to its Treasury debt holdings in the next decade.

Of course, it won’t be called QE, which President Donald Trump has urged the Fed to restart. Rather than trying to drive down long-term interest rates to boost growth, the purchases are intended to replace the Fed’s mortgage-bond holdings gradually as they mature and to keep ample reserves in the banking system. But the effect, some say, will nevertheless be largely the same.

“For anybody that has been in the market for the last 10 years, it will feel like QE,” said Priya Misra, global head of rates strategy at TD Securities. “Once again the Fed will be the single largest buyer of Treasuries and (this time) in a non-QE world. This will be a very bullish Treasury-market dynamic.”

QE May Be Over, But the Fed’s U.S. Debt Hoard Is About to Soar – Bloomberg, May 21st

Keep stacking… Income-generating assets

We have talked about this for the past three years; there is no way the Federal Reserve can stop buying U.S. Treasuries ever again.

When asset market prices move higher, there may be less of an immediate need for the Fed to step in to the market, because assets provide collateral for more asset buying, especially U.S. Treasuries. But even when asset prices are high, eventually the Fed must take action to keep interest rates in line. Thus, additional UST purchases will be needed. The reasoning from the authorities may differ depending on the circumstances, but it all means the same thing. The Fed and all the major central banks will keep buying sovereign debt for as long as they want to keep the economy and financial markets moving forward.

All currencies are being debased together, so the results are less obvious. The central banks are all coordinating policy to keep this going for as long as the elites want. Even the PBOC and the Fed are working together to keep the agenda moving forward.  From what I can tell, they all have the power, tools, and ability to keep it going, and the wealthy owners of the assets are excited at these prospects.

Inflationary pressures can be kept in check as the continual debt buildup drains the economy of its buying power. More economic exertion is required to service the outstanding debt and anyone who does not possess income-generating assets will fall further behind.

Owner-occupied real estate will move higher, but the property tax burden and costs of ownership will move up as well. Owner-occupied housing will be a millstone to many current homeowners who are barely hanging on. This is why we see movement in the real estate industry to undermine the power of the broker and its commission structure.

We can look at some of the specific balance sheet holdings, like mortgage backs falling off, and scream calamity, but as long as the Fed continues to add to their UST holdings that is all that matters. Why is this? The U.S. sovereign yield curve must move lower over time and all other debt securities are priced off this yield curve.