Saturday, February 27, 2010

Fed's holdings of Treasuries

I had read about Fed purchasing Treasuries through the primary dealers; today I thought I should try and find the Fed's balance sheet.

And this is what I see:

Millions of dollars
Week ended Feb 24, 2010
U.S. Treasury securities $776,557
Source: http://www.federalreserve.gov/releases/h41/current/

Recently, there were reports of Japan becoming the largest holder of US treasuries by surpassing China. Later, this story became mysterious because those reports did not account for Chinese entities holding treasuries through overseas locations. Now, this link clarifies the issue by saying that China is still, by far, the largest holder of Treasuries.
But, if Japan is at $768 B, does that mean that the Federal Reserve is the second largest holder of US Treasuries?
This would be rather amusing, as it implies a monetization of debt that, well, makes sense because it fits in well with quantitative easing. It also means that inflation should start kicking in soon through the expanded money supply mentioned in my earlier post.

3 comments:

  1. What does historical data show about the Fed's holdings of Treasuries? I agree that their position now is likely far larger relative to GDP (or some other metric) than in the past, but I would also think they have always been one of the largest holders of Treasuries. It is a primary method of controlling the money supply.

    http://www.cnbc.com/id/29880401

    ReplyDelete
  2. In regards to inflation. Check out the St. Louis Fed's statistics on excess reserves (http://research.stlouisfed.org/fred2/series/EXCRESNS). When/if this money works its way into the private sector is when we have to worry about inflation, assuming economic growth remains stagnant or declines. In a free market I think this risk is mitigated because bank's won't lend if credit risk is high. However, this risk could be propagated by the government forcing bank's to lend, which may lead to economic expansion or a second wave of bailouts. Chicken or the egg...

    ReplyDelete
  3. I never believed that the Fed had been one of the largest holders of treasuries, and yes, I agree that the it is a good way of controlling money supply, indirectly. I quickly browsed through that particular line item from 1996 onwards and hence follows my next post.

    ReplyDelete