The Fed's Balance Sheet and Debt Delinquency

There are certain metrics which are worth following in view of the anticipated inflation which is expected at the end of this expansion in Government spending. The first is the nature of the FED's assets especially in Treasury maturities. The chart below shows the result for last week. What is surprising is the amount held in long term debt as compared to the mix. We will be looking at the trend in this mix as a percent because the more the FED holds in long term the more we would suspect that they cannot sell the debt to third parties.




















The expansion of the above for three dates is shown below.



















We see that there is some percent growth to the shorter term notes.


The second chart shows the explosion in delinquencies of debt as recorded by the FED. The credit card debt delinquency is on a separate axis because it is exploding at a rapid rate. It exceeds any past level and this represents an added risk for the banks as they try to come out of the housing mess. In addition we still see the explosive delinquencies in residential and commercial meaning that there is no time soon that we would expect a resolution. This will thus change the nature of the FED's balance sheet as Treasury debt will become a more risky proposition.



















It will be important to watch these figures as well as the Treasury spreads, FED's assets, and the velocity of money and imputed inflation. Looking forward we still anticipate a 10% plus inflation rate depending on what the FED does. The problem is that if Bernake is replaced by Summers we may see wild fluctuations in the FED policy which may likely exacerbate the problem which is still two years down the road.