Here is a quick summary of facts on QE3 announced by the US Federal Reserve today.

First courtesy of my favourite site for what it all means – ZeroHedge

Putting it all together, the Fed’s balance sheet will increase from just over $2.8 trillion currently, to $4 trillion on December 25, 2013. A total increase of $1.17 trillion.

 

And this is from somewhere less than 1 trillion right before the banking crisis.  Currently US GDP runs at $15 trillion, so the Fed balance sheet will hold treasuries and other mortgage debt of about 25% of GDP.

Yield on mortgage securities hits new low | ft.com

The $40bn compares with average monthly issuance of agency securities of $130bn, according to Barclays figures. Adding in reinvested principal, the Fed will be buying an average $3.5bn of mortgage-backed securities every day.

Fed Action Spurs Broad Rally; S.&P. Rises 1.6% | NY Times

The Fed pushed out its window for lower interest rates and set out a new program to buy $40 billion of mortgage-backed bonds each month until the economy improved. The open-ended move was more than many investors had anticipated and helped spur a broad rally that strengthened as the day went on.

Relevance to Bankwatch:

Todays announcement does not impact bank balance sheets directly but it does begin go down the road of institutionalising mortgage risk into the hands of the government.