By Ronald Fink
Goldbugs and other “hard money” enthusiasts may have a hard time believing it, but the Federal Reserve’s balance sheet is starting to return to normal. Say what you want about the Fed’s secrecy and leniency toward banks, the central bank is being true to its word about ending its bailout operations.
While the Federal Open Market Committee’s announcement on Wednesday suggests little change in its interest rate policy, the FOMC clearly reiterated its intent to unwind most of the special liquidity facilities it put in place during the financial crisis by early next year.
“The committee and the board of governors anticipate that most of the Federal Reserve’s special liquidity facilities will expire on February 1, 2010, consistent with the Federal Reserve’s announcement of June 25, 2009,” the latest announcement said.
The exceptions, the FOMC continued, are the Fed’s facilities for asset-backed securities backed by commercial mortgages and for loans backed by other types of collateral, which are slated to end on March 31 and June 30, respectively.
Sure enough, a look at the Fed’s balance sheet http://www.federalreserve.gov/releases/h41/Current/
as of December 9 shows that Treasury securities continue to increase as a percentage of the Fed’s total assets. After falling sharply last fall to roughly 25 percent, Treasury securities now represent more than a third of the Fed’s balance sheet.
Meanwhile, all other assets except mortgage securities have come down sharply in both absolute and proportional terms. Even the overall size of the balance sheet is down slightly from its peak late last year.
So while the Fed remains the lender of last resort when it comes to housing, the bank is betting it will be able to unwind that position by early next spring.
No wonder gold is down about 9 percent since hitting a 52-week high on Dec. 1.
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