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The fed balance sheet is absolutely massive.[0] One item that usually surprises folks not familiar with the money market is that the Fed owns 2.5 trillion dolla
by ipnon 5y ago
The fed balance sheet is absolutely massive.[0] One item that usually surprises folks not familiar with the money market is that the Fed owns 2.5 trillion dollars worth of mortgage-backed securities. That's 2,500 times a billion dollars worth of Americans' mortgages. If you are a homeowner in the United States, it's a good bet that the Federal Reserve has played some part in the financing of your very own home.
This project of buying regular Americans' mortgages began during the Great Recession, when the government was willing to do whatever it takes to keep the economy from imploding more than eventually did anyway. You can buy a lot of homes with 2.5 trillion dollars! This is a great example of a temporary program that inevitably became permanent. How would you even sell 2.5 trillion dollars worth of anything? Who could buy it?
[0] https://www.federalreserve.gov/monetarypolicy/November-2021-Federal-Reserve-Balance-Sheet-Developments.htm https://www.federalreserve.gov/monetarypolicy/November-2021-...
- jdsully 5y agoThe average mortgage is held for 8 years so theoretically they’d just age out if the fed stopped buying more.
- kbelder 5y agoYeah, but the fed stopping buying would cause a huge shift in demand. You can't really depend on any other variables in the market holding steady when such a large distortion is removed.
- jdsully 5y agoThey stopped in 2014 and we didn’t die (although there was the taper tantrum a year prior).
- eutropia 5y agoThis might be a dumb series of questions but here it goes: Didn't we get into a huge mess because of mortgage-backed securities just 15 years ago? And you're telling me now instead of (i)banks owning them, the federal reserve owns them? Does anyone know what the general "rating" of those securities is? Isn't this dangerous? I know we trust our governments to handle things like nuclear weapons but this seems a bit more dangerous and opaque with far less oversight. Should we be concerned?
- VirusNewbie 5y agoBanks are the federal reserve.
- gruez 5y agoOnly in the sense that banks hold shares in the federal reserve, but since the federal reserve is controlled by the federal government it's not really comparable to holding shares in JP Morgan Chase. It essentially functions as a government agency.
- VirusNewbie 5y agoDo you think there is a separate bank that literally holds the money? Do you think the US government owns the assets owned by the federal reserve?
- gruez 5y ago>Do you think there is a separate bank that literally holds the money? holds what money? all the money in the US? all the money on the fed's balance sheets? >Do you think the US government owns the assets owned by the federal reserve? What do you think ownership means? The federal government might not "own" the assets in the sense that they can raid the federal reserve's holdings, but they (or their appointees) can very well direct the federal reserve to sell/buy holdings at will. They can also direct the federal reserve to buy government debt, which is essentially giving the government money.
- VirusNewbie 5y agoWhat I'm trying to say is that the Federal Reserve is not owned by the US government and instead owned by all of the chartered banks. So having 1B of mortgage backed securities go from being owned by JPMorgan to 'The Federal Reserve', just means it's more evenly distributed across all banks, not that 'the government' now owns the debt.
- naveen99 5y agoThe us separates government debt from fed assets. If you net it out, the debt is even more massive, especially compared to some countries which just have sovereign wealth funds, a budget surplus, and no debt. best to just look at the global economy, and find your place in it.