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King Report: Fed didn't monetize that much debt

Section: Daily Dispatches

From The King Report
By Bill King
M. Ramsey King Securities, Burr Ridge, Illinois
Friday, August 7, 2009

... The Fed monetized $14.2 billion of mostly five- and seven-year bonds in the past two days. But [Federal Reserve Chairman Ben] Bernanke continues to gradually shrink the Fed's balance sheet. It fell $11.319 billion for the week ended on Wednesday due to an $11.467 billion decline in "central bank liquidity swaps." (Dollar swaps aren't needed now.)

The Fed's scheme, per its behavior, is to monetize mortgage-backed securities, U.S. debt, and agency debt while allowing some credit facilities to naturally whither. Perhaps the Fed is marshalling resources because it expects further government-sponsored entity woes:

Several bloggers are screaming that the Fed monetized half of the $28 billion seven-year auction. This is totally false. The Fed monetized $6.43 billion of 7s on Thursday and $6.3 billion of 5s on Wednesday. The five-year auction was $39 billion. The above New York Fed link is crystal clear on what the Fed monetized this week.

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