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# Fed 3: Both the Fed and Buffett love T-bills ## Both the Fed and Buffett love T-bills short-term bonds In view of the fact that the Fed's balance sheet reduct

2026-07-20·x-repost-20260720-164505

Fed 3: Both the Fed and Buffett love T-bills ## Both the Fed and Buffett love T-bills short-term bonds In view of the fact that the Fed's balance sheet reduction is basically carried out in a "no renewal" manner. Let’s first take a look at how many U.S. Treasury bonds the Federal Reserve currently has with maturities within one year: U.S.

debt with a remaining maturity of one year is approximately US$510 billion, accounting for approximately 7.6%. The remaining U.S. debt with a maturity of 1-5 years is about 1.4 trillion US dollars, accounting for about 21%.

After Powell ended the balance sheet reduction at the end of 2015, he returned to "neutral reinvestment", which means buying back 100 US dollars of U.S. bonds at maturity, but Interestingly, the Federal Reserve has purchased all maturing principal into U.S. bonds with a maturity of one year or less.

In other words, the new additions in the hands of the Federal Reserve are short-term bonds (T-bills). This means that the Fed can continue to shrink its balance sheet at any time in the future! Speaking of which, I have to mention Buffett first: According to the financial report for the first quarter of 2025, Berkshire Hathaway’s holdings of U.S.

short-term Treasury securities (less than 1 year) amount to approximately $314 billion, making it the fourth largest holder in the U.S. short-term Treasury market , also the largest non-governmental holder. Its holdings of short-term Treasury bonds once even exceeded those of the Federal Reserve.

In the final analysis, it may be that neither Buffett nor the Federal Reserve has much confidence in the United States in the long term~ (haha, I won’t expand on it yet) ## In fourteen years, the assets of the Federal Reserve have increased by up to 9 times!

Kevin Warsh said: After 2008, the Federal Reserve’s rapid QE (balance sheet expansion: quantitative easing) expanded total assets from approximately US$1 trillion to US$9 trillion. He believes that this is the root cause of inflation in the past decade or so, rather than supply chain and geopolitical shocks.

Therefore, he advocates continuing to significantly reduce the balance sheet. As long as M0 currency is locked from the source, the excess currency circulating in the market will "disappear". This will be a more practical and fundamental means of controlling inflation than simply regulating currency prices (interest rates).

To understand his views, one must understand U.S. inflation after 2008. Between 2008 and 2020, the inflation rate was actually around 2% in most years. Starting in 2021, large-scale stimulus policies were introduced in response to the epidemic (M2 growth reached 25% in 2022).

During the same period, Trump began to make enemies everywhere, build a wall with China, and think about reshaping the supply chain. As a result, domestic commodity prices increased. In 2022, CPI reached a peak of 8%. During the same period, M2 expanded approximately 2.5 times in 16 years, with an annual growth rate of 6.5%.

Eggs have probably more than doubled, milk, beef, and the median rent have probably increased by 1.5 times. Most of the M2 is estimated to have gone to the stock market. The Dow rose from the lowest point of 6,440 points in 2008 to the highest point of 50,830 points, an increase of 7.9 times.

The Nasdaq rose from a low of 1,265 points in 2008 to a high of 26,805 points. It has doubled 21 times. With funds flooding in, repurchasing stocks with financing has become the best place for M2. The financial leverage of listed companies has risen from the lowest of 2 times to the highest of about 4 times.

From the perspective of the Chinese who have experienced high M2 growth, this does not seem to be a big deal. But from the perspective of the Federal Reserve, in the past 14 years, even though the monetary inflation level of the whole society was about 2 times, the Fed's balance sheet has actually increased by 9 times! This is a bit unreasonable.

After two rounds of shrinking, the Federal Reserve’s balance sheet of US$9 trillion has shrunk to US$6.7 trillion, which is only a one-third reduction, which is not enough! The first round of balance sheet reduction was from 4.5 trillion to 3.8 trillion, a reduction of approximately 16%.

As a result, the outbreak of the epidemic completely interrupted the balance sheet reduction process. By the time the second round of balance sheet reduction begins in 2022, the balance sheet has reached the level of 9 trillion! The first round of balance sheet reduction was a complete failure.

The second round of balance sheet reduction has now reduced the balance sheet to 6.7 trillion yuan, a reduction of approximately 26%, which is considered effective. But even so, the total assets of 6.7 trillion yuan are still about 50% higher than the 4.5 trillion yuan that "planned to shrink the balance sheet" that year.

## At least another $1 trillion reduction Not ideal. Kevin Wash is not satisfied. If it keeps pace with the 2% inflation level, the Fed's total assets "should" probably not exceed 1.5 trillion in 16 years. And the current level of assets is simply unfathomable.

Kevin Warsh has mentioned many times that a reduction of at least another US$1 trillion is needed to meet "actual needs." He has the following actions to choose from: 1. [Passive balance sheet reduction]: Still continue to invest by not renewing investments upon expiration. 2. [Active balance reduction]: Actively sell U.S. debt and MBS assets 3.

[Sell long and buy short]: Maintain "neutral" by selling long and buying short, but in fact it is an attitude of shrinking the balance sheet. 4. [Reduce reserves] Reduce the principal of commercial banks and increase leverage to maintain total stability, but at the cost of increasing the leverage of the financial system.

Full text

# Fed 3: Both the Fed and Buffett love T-bills ## Both the Fed and Buffett love T-bills short-term bonds In view of the fact that the Fed's balance sheet reduct

# Fed 3: Both the Fed and Buffett love T-bills ## Both the Fed and Buffett love T-bills short-term bonds In view of the fact that the Fed's balance sheet reduction is basically carried out in a "no renewal" manner. Let’s first take a look at how many U.S. Treasury bonds the Federal Reserve currently has with maturities within one year: U.S. debt with a remaining maturity of one year is approximately US$510 billion, accounting for approximately 7.6%. The remaining U.S. debt with a maturity of 1-5 years is about 1.4 trillion US dollars, accounting for about 21%. After Powell ended the balance sheet reduction at the end of 2015, he returned to "neutral reinvestment", which means buying back 100 US dollars of U.S. bonds at maturity, but Interestingly, the Federal Reserve has purchased all maturing principal into U.S. bonds with a maturity of one year or less. In other words, the new additions in the hands of the Federal Reserve are short-term bonds (T-bills). This means that the Fed can continue to shrink its balance sheet at any time in the future! Speaking of which, I have to mention Buffett first: According to the financial report for the first quarter of 2025, Berkshire Hathaway’s holdings of U.S. short-term Treasury securities (less than 1 year) amount to approximately $314 billion, making it the fourth largest holder in the U.S. short-term Treasury market , also the largest non-governmental holder. Its holdings of short-term Treasury bonds once even exceeded those of the Federal Reserve. In the final analysis, it may be that neither Buffett nor the Federal Reserve has much confidence in the United States in the long term~ (haha, I won’t expand on it yet) ## In fourteen years, the assets of the Federal Reserve have increased by up to 9 times! Kevin Warsh said: After 2008, the Federal Reserve’s rapid QE (balance sheet expansion: quantitative easing) expanded total assets from approximately US$1 trillion to US$9 trillion. He believes that this is the root cause of inflation in the past decade or so, rather than supply chain and geopolitical shocks. Therefore, he advocates continuing to significantly reduce the balance sheet. As long as M0 currency is locked from the source, the excess currency circulating in the market will "disappear". This will be a more practical and fundamental means of controlling inflation than simply regulating currency prices (interest rates). To understand his views, one must understand U.S. inflation after 2008. Between 2008 and 2020, the inflation rate was actually around 2% in most years. Starting in 2021, large-scale stimulus policies were introduced in response to the epidemic (M2 growth reached 25% in 2022). During the same period, Trump began to make enemies everywhere, build a wall with China, and think about reshaping the supply chain. As a result, domestic commodity prices increased. In 2022, CPI reached a peak of 8%. During the same period, M2 expanded approximately 2.5 times in 16 years, with an annual growth rate of 6.5%. Eggs have probably more than doubled, milk, beef, and the median rent have probably increased by 1.5 times. Most of the M2 is estimated to have gone to the stock market. The Dow rose from the lowest point of 6,440 points in 2008 to the highest point of 50,830 points, an increase of 7.9 times. The Nasdaq rose from a low of 1,265 points in 2008 to a high of 26,805 points. It has doubled 21 times. With funds flooding in, repurchasing stocks with financing has become the best place for M2. The financial leverage of listed companies has risen from the lowest of 2 times to the highest of about 4 times. From the perspective of the Chinese who have experienced high M2 growth, this does not seem to be a big deal. But from the perspective of the Federal Reserve, in the past 14 years, even though the monetary inflation level of the whole society was about 2 times, the Fed's balance sheet has actually increased by 9 times! This is a bit unreasonable. After two rounds of shrinking, the Federal Reserve’s balance sheet of US$9 trillion has shrunk to US$6.7 trillion, which is only a one-third reduction, which is not enough! The first round of balance sheet reduction was from 4.5 trillion to 3.8 trillion, a reduction of approximately 16%. As a result, the outbreak of the epidemic completely interrupted the balance sheet reduction process. By the time the second round of balance sheet reduction begins in 2022, the balance sheet has reached the level of 9 trillion! The first round of balance sheet reduction was a complete failure. The second round of balance sheet reduction has now reduced the balance sheet to 6.7 trillion yuan, a reduction of approximately 26%, which is considered effective. But even so, the total assets of 6.7 trillion yuan are still about 50% higher than the 4.5 trillion yuan that "planned to shrink the balance sheet" that year. ## At least another $1 trillion reduction Not ideal. Kevin Wash is not satisfied. If it keeps pace with the 2% inflation level, the Fed's total assets "should" probably not exceed 1.5 trillion in 16 years. And the current level of assets is simply unfathomable. Kevin Warsh has mentioned many times that a reduction of at least another US$1 trillion is needed to meet "actual needs." He has the following actions to choose from: 1. [Passive balance sheet reduction]: Still continue to invest by not renewing investments upon expiration. 2. [Active balance reduction]: Actively sell U.S. debt and MBS assets 3. [Sell long and buy short]: Maintain "neutral" by selling long and buying short, but in fact it is an attitude of shrinking the balance sheet. 4. [Reduce reserves] Reduce the principal of commercial banks and increase leverage to maintain total stability, but at the cost of increasing the leverage of the financial system.

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