Hints of A Coming Plot Climax in the Fed and Banking System Soap Opera

The size of the Fed’s balance sheet fluctuates between $4.39 trillion and $4.50 trillion each month as MBS are paid down and then more are purchased to replace the paper that was paid down. While the Fed's balance sheet is not expanding, the Fed continues to pump cash into Primary Dealer accounts via mid month MBS purchase settlements of forward purchase contracts from the previous 2 months. The dealers use that cash for whatever they want, including the purchase of more MBS, or Treasuries, or even stocks. That cash helps to rig the markets, for now keeping the bias to the upside. But pressures are building that could reverse the tilt of the playing field.

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