Courtesy of Pam Martens.
Fed Chair Janet Yellen Has $780 Billion Still In Her Purse As She Takes the Reins at the Fed
From the very moment one starts a career as a rookie on Wall Street, you are taught the number one Golden Rule of investing by your elders: “Don’t fight the Fed.” If the Fed is hell bent on pumping liquidity into the markets, don’t fight the bull thesis. If the Fed is, for whatever reason, forced to drain that liquidity from the markets, head for the exits before you’re trampled by a stampeding herd.
On September 13, 2012, the Fed’s Open Market Committee (FOMC) announced it would begin buying “agency mortgage-backed securities at a pace of $40 billion per month.” A mere three months later, it more than doubled the ante with this announcement on December 12:
“To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee will continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month. The Committee also will purchase longer-term Treasury securities after its program to extend the average maturity of its holdings of Treasury securities is completed at the end of the year, initially at a pace of $45 billion per month.”
Those purchases alone have infused over $1.02 trillion of liquidity into the hands of Wall Street firms which could loan it out to hedge funds to be leveraged by as much as 95 to 1 in stock futures. The U.S. stock market boomed, setting new highs last year.
In addition to new purchases, the Fed has been reinvesting the principal payments from its mass hoard of bonds into more bonds. As of this January 30, according to Fed data, its assets had swollen to just over $4 trillion – a quadrupling of its balance sheet since the Wall Street crisis began in 2008.
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