The Bankwatch

Tracking the consumer evolution of financial services

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.

Yield on mortgage securities hits new low | ft.com

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.

Fed Action Spurs Broad Rally; S.&P. Rises 1.6% | NY Times

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. 

Written by Colin Henderson

September 14, 2012 at 01:06

Posted in Uncategorized

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