The Fed Balance Sheet & The Price Of Silver

Something quite interesting happened as the Federal Reserve increased its balance sheet from 2003 to 2012.  As the Fed’s balance sheet jumped from $738 billion to $2.8 trillion by 2012, the price of silver increased to $30 that year.  However, as the Fed continued to increase its balance sheet by printing money and acquiring worthless assets, the price of silver changed direction and headed lower over the next four years.

According to information and Chart #26 published in THE SILVER CHART REPORT:

Fed-Balance-Sheet-vs-Silver-Price

The Fed’s balance sheet was $738 billion in 2003, but grew to $2.8 trillion by 2012, thanks to Quantitative Easing 1 – QE1 (adding $800 billion in bank debt, including U.S. Treasuries and mortgaged-backed-securities –source) and QE2 (adding $600 billion in U.S. Treasuries –source).

The Fed basically printed money out of thin air to purchase these financial instruments, which it placed on its balance sheet. As the market realized the Fed’s QE policies were quite inflationary, silver investment surged, pushing the price of silver to a record annual price of $35.12 in 2011. However, something interesting took place when the Fed announced QE3 in September 2012.

The QE3 policy allowed the Fed to purchase $40 billion a month of mortgaged-backed securities and $45 billion of U.S. Treasuries. From the end of 2012 until 2015, the Fed’s balance sheet increased another $1.7 trillion, to $4.5 trillion. The market began anticipating QE3 after then-Fed Chairman Ben Bernanke stated that more easing might be necessary in a press conference held on June 20, 2012 (source).

Investors started buying silver in early July 2012 at the low price of $26 and by the time QE3 was announced on Sept 12, the price skyrocketed to $35. Unfortunately, the price of silver did not continue to rise with the Fed’s balance sheet as it did before, but rather started a long bear market decline, to a low of $15 in 2015. Instead of the QE3 liquidity heading into the precious metals or commodities, the majority went into the broader stock and bond markets.

Again, that came from THE SILVER CHART REPORT.  As we can see, the price of silver is now close to $14.  Fortunately for the fundamentals of owning precious metals, the Fed is in a real corner.  While some individuals believe the Central Banks will control the paper prices of gold and silver indefinitely, this is one hell of a lousy assumption.

At some point, the Fed and Central Banks will lose control of the market and things will get out of hand rapidly.  The idea that the paper price of gold and silver will head toward zero as monetary printing and debt skyrocket towards the heavens… just goes to show how serious the BRAIN DAMAGE has become in a good percentage of Americans.

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If you haven’t checked out THE SILVER CHART REPORT, there’s a great deal of information on the Silver Industry & Market not found in any single publication on the internet.  There is one chart in this report (Chart #19) that I can guarantee that 99.9% of precious metal investors haven’t seen before.

I use this bird’s-eye approach when I create my easy to understand charts.  The Silver Chart Report is a collection of my top silver charts from articles published over the past six years, and includes in-depth, never-before-seen charts and content that indicate that silver is on the rise. There are 48 charts in the report, broken down in five sections.

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32 Comments on "The Fed Balance Sheet & The Price Of Silver"

  1. This tells the story of the last 7 years’, says’ all you need to know. Theres’ “no manipulating markets’ my ass. If the spread on this chart doesn’t make sense to you, your an idiot. Steve great work, your site is the best, a long with investment research dynamics.

    • Well, as mah ole daddy told me decades ago.”.silver, gold, brass and lead are the 4 precious metals to buy..and hold”. I see nothing different these days. Brass and lead of course to reload ammunition for those of us who practice that interesting..hobby.

  2. This is what i call the T-Rex chart because it look like a T-Rex with his mouth open wide ready to gobble the sheeple. For me this is one of the most relevant charts and it proves the insane monetary madness of our times. That gorge is going to snap one day and when it does there will be a carnage happening in all financial markets globally and virtually overnight. The only problem with it is that we don’t know when that will happen nor how it will end.

  3. It doesn’t take a rocket scientist to stop and carefully look around the landscape of economics to see that there are things out of whack in every square inch of our financial well being as a country.
    Trillions in debt does not bode well for the future of the U.S. Debt that cannot be paid back.
    It is crystal clear that the physical metals are being slaughtered in order to
    keep the phony paper currency respected by the millions of clueless who rely on it for their every day needs.
    The paper lie will die , soon enough.

  4. This chart is evidence that the price of silver is not correlated to sovereign debt. Sovereign debt will eventually default and cause a rush to the reserve currency( the us dollar). We are seeing this process now unfolds. In essence sovereign debt is bearish for silver, it will cause lots of deflation contrary to what this author believes.

    • @Joe How logic is it, that the Dollar would benefit from a dept default. I don’t know of any country who’s currency have benefited from a sovereign dept default, but i think there wont be a dept default in the first place. The US can’t and wont default openly. The FED will print all the money needed in order to fight deflation and to keep ongoing the gov. deficit spending. It’s very likely that they will print the US into a hypter inflation at some point in the future. The Dollar is still the reserve currency and a dept default would put that state into danger, even more than it already is due to the growing use of other currencies for international trade. I mean, who would trust a reserve currency from a bankrupt country? Sure, Silver will be kept supressed for a long as possible, probably at even lower levels as today. That will continue as long as physical Silver can be delivered. The game will be over once there is a failure to deliver either at the Comex, the LBMA or at the Shanghai Exchange. The thing is that we don’t know when this is going to happen and how it will end.

      • EM sovereign debt will default, this very deflationary. The US debt is not debt, it is being written off with every QE. Essentially QE is US debt cancellation and not printing.

    • Yes, yes , yes Joe I’m sitting here in Australia thinking yes there is not one bar, cigarette vendor, super market , tractor dealer that will accept US dollars but 25 gold, bulllion dealers…yes i’ll load up on green pieces’ of paper makes perfect sense even though I can’t spend them even when they are still worth something. hee..hee.. you really don’t get that there are actually people who are not American do you Joe?…you truly are a crack up…lol

      • The US dollar is backed by google, intel, fb and the likes. Australian dollar is backed by commodities. Last I checked the exchange rate is $1.38. If that is not evidence for you, I don’t know what else can be.

        • Joe,

          Unfortunately, you are looking at the situation with the typical mainstream understanding. Which is the reason why most people are still investing in paper assets.

          GOD HATH A SENSE OF HUMOR.

          steve

          • That’s right Steve. 98% of the people DON”T OWN ANY SILVER. They own
            dollars. Articles upon articles written these past 40 years keep saying that
            FIAT currencies die. That may be so in the next 25 years or so. The only way
            silver increases is by having another 1% of the world buy 1 ounce a year. We’ve
            been running out of oil for 35 years. And some predict we will really do that
            about 50 years down the road. You can’t convince people that their money
            sucks and they should buy silver. Stupid is what stupid does. Rio Tinto lost a
            mine to a landslide last year. They use to supply 16% of the USA annual silver production. Yet silver kept falling in price. Now Glencore is laying off 3400 people. And you guessed it silver is heading below $14. What is not being said
            is silver will not rise in our lifetimes unless the masses start buying it.

    • Joe,

      The author (me), understands the forces of “Deflation.” However, the deflation that is coming will be different than what took place during the 1930’s and briefly during the 2008-2009 period.

      The difference will come down to the subject of WHAT IS A REAL ASSET? There is very little physical silver (or gold) compared to the 100’s of Trillions of soon to be worthless.. or increasingly worthless paper assets. You can thank that to soon to be declining oil production and the falling EROI.

      Individuals need to stop thinking about typical TEXTBOOK DEFLATION. Those days are over.

      steve

      • Steve,

        I tend to disagree, electricity is available in unlimited amounts. This will be the opportunity of the new economy. As sovereign debt defaults, there will be demand destruction for silver. The world will never consider silver a currency, but they will consider google, aka US dollar, the currency of the future.

        The US debt is being cancelled by QE. I vote with the market, it knows better. Your story is so compelling to be ignored by institutional money. Silver price is down to 14 and it is not being rejected. One single institution can hijack the silver market, but no one seems to be interested.

        Destruction of the US dollar means world wide apocalypse, nothing will mater at that point. The market is not stupid.

        • Joe,

          You are more than welcome to hold your own opinion on the matter. However, all I ask of you is to stay alive for the next 2-5 years. I think that should be ample time for you to understand the ENERGY DYNAMICS.

          Again… GOD HATH A SENSE OF HUMOR.

          steve

          • Steve,

            You are missing the point. As the EROI falls, the demand for silver will fall with it. There is a high correlation.

            Silver will only have a utility if Electricity replaces oil, if not, the world will go to apocalypse where water and food are the new sources of economic energy,silver will have no perceived economic energy in such a system.

          • Joe,

            Unfortunately, you are making some lousy assumptions that I don’t agree with. Again, we will have to agree to disagree on this one. Please remember my last comment 2-5 timeframe.

            steve

  5. Red,

    I am very surprised. I was sure that you Australians were every bit as smart as your commonwealth cousins the Canadians. I live very close to the Canadian border and my Canadian friends accept the US dollar from the Yank tourists at par and laugh all the way to the bank. ( AU$1.00= US0$.72, CAD$1.00=US$0.75) So if you are taking a US$1.00 for every AUD$1.00 you are making US$0.28 on every dollar – seems like free money to me.

    If your bank won’t take the dollars, find an American express office and they will take them and only charge you 1.5%.

    Cheers Mate!

    SteveW

    • You Know Red,

      I was thinking about it and I envy the position you are in. The Aud$ is going to continue to decline relative to the US$ because of China’s screwed up economy. That means Australia is probably going to be seeing a lot more US tourists. If they don’t have enough respect, are too stupid and/or are too lazy to convert to AUD$, then I would talk to all of the local bars, cigarette vendors, small supermarkets and the like and encourage them to take US$ one for one UDd$. You offer to buy them once a week for AUD$1.15. They make an extra 15% and you collect them and, figuring 4% for exchange and transport expenses, you make AUD$0.20 for every US$.

      Could be a great little business.

      SteveW

  6. Would someone please define the upcoming” currency collapse?” If the dollar fails there will
    be a “Furguson” riot in every town/ city in the USA in the first week. What does one do with a
    bunch of silver? Do I move to New Zealand. I’ll be robbed on the way to the airport. Isn’t it more logical to see our currency devalue at 10 or 20% a year for several years? I can’t understand
    the use of the expression” Collapse of the FIAT currency. ” What do people mean when they use
    it? If it goes to zero what do 350,000,000 Americans do?

    • joe,

      The collapse of the dollar will happen overnight but not like you imagine.

      First you have a period of deflation where you have a reduction in the general price of everything. First all of the luxury items, the things that people buy everyday but don’t really need. in other words “optional” items. People are holding on to their money because they are unsure and believe they can buy the things they want later at a cheaper price. When everybody does this, the slowing economy slows even more. Companies are not selling the things they make so they lay people off and default on their debt. This has a snowball effect through out the economy so that it starts to have dramatic effects on necessities. So all of those trucking companies that helped deliver food are out of business and now shortages start to appear and the price of necessities start to go up.

      While all this is going on in the retail market, in the financial markets, companies that are going out of business are not paying their employees, not paying their mortgages and not paying the interests on their bonds so the stock market and bond market crash (2008-9) in a panic..In 2008-9 the Fed jumped in and pump tons of money into the system to avert disaster. This time it will be different because of the magnitude of the debt created since 2009. The is not enough money even in your imagination that will be able to stop the crash this time.

      Fundamentally there are billions and billions of dollars in debt to every actual printed dollar. the “money printing” of the FED is not literal cash but digital dollars. The day of the crash all credit card transaction will come to a complete and abrupt halt. If you want to put gas in your car, you better have the cash. The collapse of the credit system collapse the total business systems. You can’t buy Florida orange anywhere but florida because there is no credit. So locally available necessities like milk and bread skyrocket in price. With out the trucks delivering food to grocery stores, in three days their shelves are empty and the food riots begin. And because you can’t buy anything with your cash, if you have any left, it is worthless. The government steps in, declares marshal law and takes over the food distribution chain. Now you have food lines, more riots and general chaos. As the government attempts to restore order and all debts are in default the government devalues its money. So what was once worth a dollar is now worth 1,000th of a dollar and presto! Government debt is gone. Society is in chaos.

      If you were smart enough to plan and prepare. You are out of the city living in the country trading directly with local farmers and producers. You may barter bullets or batteries but the real money will be gold and silver.

      Many, many will die and most everybody else will go through hell.

      Those that are prepared will fare far better.

      Scary isn’t it? It is coming.

      Get prepared.

      SteveW

  7. What am I missing regarding the Fed balance sheet. They have 4 trillion in assets, mostly government
    bonds and mortgages. They then have 4 trillion in liabilities. If interest raised 1/2 % a ten year note
    of $1000 at 2% interest falls to $970 and this also goes for mortgage debt. That being the case the FED’s balance sheet would show bankruptcy because their assets are lower than their liabilities. Can the FED be stupid enough to raise rates? The more they raise the worse this gets.

    • Joe,

      First, the mortgage debts they bought are owed by home owners that will likely be unemployed,

      Second, for all the other debt that will be in default (not by our government alone, just the world)

      go here and you can see all of the various assundry credit swaps and derivatives.

      If you are going to add them up I suggest you leave off six zeros as most calculators can’t handle scientific notation.

      SteveW

  8. Steve,
    Seems i touched off a raw nerve with the US dollar. Fact is you can trade in US dollars in OZ at a ratio of about 2 to 1 or more and then the same again back, but not through trad means’ I mean with the Calabrian family or an Outlaw motor cycle club , but then you are an outlaw according to our Gov. Premiums through currency traders here make trading any physical currency by little people absolute waste of time. With metals however there is wiggle room and bargains to be had. I’m sorry but the $US is gone if you listen to those with a bureaucratic mind set they are gonna kill it. The deflationary apocalypse needs failing stocks, bonds, etc and it will not be allowed to happen the msn tells us as much, hyper inflation across all paper money just matter of time. JMO

  9. for some reason the reply came up with the wrong name? no i’m not joe..i’m red ha ha

    • Red,

      If that’s who you are.

      Either way Red &/or Joe I don’t want to seem a liar but I promise you both that all of the currencies in the free world are going down. The US$ will probably be last ONLY because the US has the largest economy and it is more of a service based economy than all of the others.
      The developing third world will be hit first (and probably hardest), followed by those economies that rely heavily on natural resources, Canada, Australia, Russia, then Europe, China and The US. They are all going down and there is no way to stop it.

      They only prayer wold be for a country to immediately issue pm backed currency and bills of lading. See http://www.professorfekete.com/articles%5CAEFOctandor.pdf

      The cause in main can be attributed to the US FED when they made the political (as opposed to good economic) decision that some companies like AIG and GM were “too big to fail”. They were only too big to fail for political reasons. Had they let them (all of them that needed) go through banKruptcy it might have been a little painful but the world would have come out of it healthy. Instead they chose the path of manipulation to avoid the political pain and to line their own pockets. There is also a lot of blame to be laid at the door of the Chinese but it is another long story.

      Now we are all going to suffer.

      Sorry Mate

      SteveW

  10. Steve,
    No argument here. For the most part, have to say you are correct. Yes they should have re collateralised the system, but probably should have happened in the 80’s. There will come a point where people will have no choice where they store capital, i think it’s coming sooner than people think , given the geopolitical action at the moment.

    • Red,

      You are right on both counts. It IS coming sooner than most people think, and

      Had they collateralised the system in 1980 when the EROI was like 15/1 it would have easier, faster and more efficient. With what it is now, recovery is going to be a long, expensive and painful process. Without cheap and easy energy, the recovery hill is a whole lot steeper.

      The only smart place to store capital today is silver that you can hold in your hand.

      Buy for cash and stash.

      SteveW

  11. Joe,

    The masses will be scrambling for silver when their dollars, yuan, real, pounds,etc are down the toilet.

    It has started now and my bet is that that will happen to us in the next 2 – 5 yrs. The FED has backed itself into a corner and is running out of tricks.

    SteveW

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