Last week, in a matter of less than 7 days, the Federal Reserve led by Chairman Ben Bernanke purchased a net of more than $20 billion in new assets. Despite the fact the Fed is now only supposed to be implementing Operation Twist (a move to sell short term Treasuries in exchange for long term ones) and a reinvestment program (the funneling of maturing mortgage-backed securities into Treasuries), the nation’s central bank is quietly embarking on a major quantitative easing program many were expecting would be accompanied by a grandiose announcement.

Fed Expands Junk Mortgage Derivative Purchases

The programs the Fed has officially announced should not result in any balance sheet growth, yet the Fed’s balance sheet has grown by in excess of $200 billion since the official end of QE2 in June of 2011. What was seen this week, was also unusual as the Fed’s mortgage-backed securities holdings grew substantially for the first time since early 2010. The total pace of asset accumulation by the Fed, which is well within the size range of a major quantitative easing program, is unwarranted given no official easing program is in place nor was formally announced. See the total growth in the Fed’s balance sheet, despite the official policy which is not supposed to expand the overall quantity of assets held by the Fed:

Fed’s Bailout of Europe is in Full Force

Aside from MBS purchases, the other major measure the Fed embarked upon last week was a large increase in loans to the European economy. The Fed lent almost $11 billion to foreign central banks, via their Central Bank Liquidity Swap Lines, and grew their “Other Assets” category, which is speculated to consist of foreign assets, by $2.5 billion. Its not to be forgotten that the loans to Europe are now being done at a cheaper than usual rate, and the payback risk the Fed faces is greater than usual given the major falls the euro currency has recently undertaken. Total outstanding loans to foreign central banks is now in excess of $100 billion, and the secretive “Other Assets” of the Fed is now greater than $155 billion:

Good Time to Buy Gold

The Fed is doing a favor to those who pay attention not only to what the Fed says, but also what the Fed does. Despite the fact many Fed officials, including the top policymakers William Dudley, Janet Yellen, and Ben Bernanke, have indicated that a new printing program might be on the horizon, no official announcement has arrived. With little attention being paid to the Fed’s new money printing schemes, gold investors can purchase the metal before the general market rushes in after fleeing the dollar. Gold is trading at reasonable levels now, given the pullback in Q4 of 2011, and is now back in line with its historical exponential trend line, and metal’s value is especially true with new news that QE3 is already underway:

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This entry was posted on Friday, January 20th, 2012 at 11:50 am and is filed under Central Bank News, Economic News, Forex News, Precious Metals News. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.