Shortly Zero Hedge will present our quarterly analysis of the liabilities held by the shadow banking system. It's quite a doozy, and cements our belief that whether immediately following or shortly after June 30 (a day, a week, a month), the Fed will have no choice but to proceed with further monetization of public debt issuance, as the private sector debt retrenchment continues at truly alarming levels, leaving just one source of debt money available - the US central bank itself. And with the Fed's desire to stimulate inflationary expectations, it will be forced to do what it is doing precisely as shown below. In the last fortnight period, the Adjusted Monetary Base increased by the second biggest amount in the past year, or $80 billion, following the previous increase of $142 billion as of February 23, or a $222 billion increase in a month. This is due to a surge in excess reserves following the winddown of the SFP program which in the past week increased by $82.6 billion (full Fed Balance sheet breakdown to follow). We continue to expect that Excess Reserves will hit $1.7 trillion by July, or over $300 billion higher from the current level of $1.380 trillion. In the meantime, observe what happens when the Fed goes hog wild with inflationary expectations. A few more days like today in the S&P, and expect Jon Hilsenrath to start the QE3 leaks. And never forget - to the Fed, the Economy and the Russell 2000 are equivalent.
Source: St Louis Fed