Some facts on QE3
Here is a quick summary of facts on QE3 announced by the US Federal Reserve today.
First courtesy of my favourite site for what it all means – ZeroHedge
Putting it all together, the Fed’s balance sheet will increase from just over $2.8 trillion currently, to $4 trillion on December 25, 2013. A total increase of $1.17 trillion.
And this is from somewhere less than 1 trillion right before the banking crisis. Currently US GDP runs at $15 trillion, so the Fed balance sheet will hold treasuries and other mortgage debt of about 25% of GDP.
The $40bn compares with average monthly issuance of agency securities of $130bn, according to Barclays figures. Adding in reinvested principal, the Fed will be buying an average $3.5bn of mortgage-backed securities every day.
The Fed pushed out its window for lower interest rates and set out a new program to buy $40 billion of mortgage-backed bonds each month until the economy improved. The open-ended move was more than many investors had anticipated and helped spur a broad rally that strengthened as the day went on.
Relevance to Bankwatch:
Todays announcement does not impact bank balance sheets directly but it does begin go down the road of institutionalising mortgage risk into the hands of the government.