Up, Up And Away (Part 2)

Tyler Durden's picture

...But before people begin panicking that the radioactive printer plant housed in the Marriner Eccles building has melted down and is now releasing radioactive money straight into the liquidity system, recall that $195 billion of this is simply from the unwind of the Supplementary Financing Program, which feeds into the Adjusted Reserves, which together with currency in circulation feeds into the Adjusted Monetary Base. Therefore, with the unwind of SFP completed, we expect this growth to taper off materially, although by the end of June the Adjusted Reserve balance alone will hit $1.7 trillion, implying another $200 billion or so in growth, although at a slightly slower pace.

The chart below once again (since we show it each week), shows the cumulative change in Excess Reserves and Fed Assets since the start of QE2. In an ideal world these two should offset each other (ideal in as much as banks don't lend out Excess Reserves and simply keep the fungible monetary electrons as substitutes for Discount Window access), and other change means a migration in(+) or out(-) of currency in circulation (inflationary or deflationary). While until February excess reserves lagged securities held dramatically, this has since flipped, assisted in part by the SFP unwind, which pushes the scales in the excess reserve balance favor. In other words, there is another $150 billion or so before equilibrium is reached, all else equal. Keep a close eye on this cumulative (in)quality as it is the most direct indicator of marginal monetary pressure imbalance (Fed assets less net currency) in the system currently.

Or, in English, the cumulative differential plunge recently is hella inflationary (as the imminent subsequent reversion to the mean means money going out of reserves and into currency).


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Yen Cross's picture

It's a large flying reptile Mix . AKA ( Pterodactyl) The Fed...

SparkyvonBellagio's picture

Vote for Ron Paul / Rick Santelli 2012

Manthong's picture

Not to worry, it'll hit resistance at about a quadrillion.

American Dissident's picture

OK - What Now?  SO- You must prefer the current slew of innumerate nutless luciferians feigning public service.  Clarity at alast!

Mentaliusanything's picture

The Identical flight plan of Icarus (with the identical fault)
wax on wax off.
My goodness, if you can't see it you have the brains of a smash crab

ParaZite's picture

Damn it Bernanke... you weren't supposed to use the viagra in the printing press.


Robot Traders Mom's picture

If you flipped the chart upside down, it would look like AAPL and the shitty tech sector over the next 6 months.

Looks like the slide continued today for AAPL...I miss the days when Robo would post his yahoo finance charts on Apple his business teacher would email to the class and he would use on ZH.

tj3's picture

Keep watching the repo's that's the headline message. I hope ZH will see other parts of the deleveraging puzzle...whether it's true or really happening, or not.

Cash_is_Trash's picture

Respect the orders of magnitude. L' inflatzione puttana

Number 156's picture

Next stop, Weimar Republic part Deux.

Long-John-Silver's picture

I can't wait till I'm heating my home with a truck load of US Dollars I purchased with a single 1oz silver round.

NidStyles's picture

Screw that, get some flame retardant epoxy and made wall's of the stuff. Nothing like cotton to keep you warm at night.

dan10400's picture

Does the unwinding of the SFP account for the big ramp from January '11?  Or is (yet) something else going on? 

bbq on whitehouse lawn's picture

Everyone with a brain, knows this is going to go bad. Question is who is going to take the fall for it?


werealldoomed's picture

I was going to wait.. But since you called me out, I might as well come clean.


This whole thing is my fault guys. I should have never loaned Big Ben my printer.

Long-John-Silver's picture

It looks like the Silver chart from the time the Hunt Brothers started buying Silver until now....

Spitzer's picture

The more the printing the worse it will be for the dollar when confidence is lost

malikai's picture

Confidence? Where? Who has confidence in the dollar?

Elliott Eldrich's picture

This increase in the adjusted monetary base is going to spark serious inflation once the velocity of money picks up. My big question is, will the Fed eventually step up to the plate and jack interest rates sky-high (ala Volcker) or will they instead allow the Dollar to inflate to nothing? Personally, considering how vital the Dollar is to the global economy, my money is on the Fed eventually stepping up to the plate and defending the Dollar with high interest rates. However, I don't see that actually happening for quite a while.

Long-John-Silver's picture

They must kill the Dollar before they can implement a one world currency.

JohnG's picture

Nope.  It's a race to zero, and Ben's winning.

Hard times ahead.

LawsofPhysics's picture

The Fed can not raise interest rates, it will push the government into default.

A Lunatic's picture

Wouldn't launching Patriot missiles soak up a lot of excess dollars?

Long-John-Silver's picture

Patriot missiles are used to shoot down incoming missiles. Tomahawk's are the missiles that contain 14Kg of unrecoverable Silver.

A Lunatic's picture

Then couldn't we launch Tomahawk's at ourselves and then just shoot them down with Patriots? That makes the most sense.

Snidley Whipsnae's picture

Nothing uses up commodities faster than war... Except a big earthquake plus tsunami plus nuke power plant melt downs.

The Fed/gov is jealous of mother nature.

Ahmeexnal's picture

In the new crop of made-in-China Tomahawks, engineers replaced silver with credit cards.

CheapKUNGFU's picture

look, its easy...

All your monetary base are belong to us, MAKE YOUR TIME!


Ahmeexnal's picture

Yet if you show this simple undeniable evidence to the sheeple, you will provoke in them the same stare as the one from a bovine about to be striken by a high speed freight train.

As to why their response to imminent danger is denial, you only must but to look at the japanese and their now set in stone fate.

TEPCO will soon announce that along with the crippled reactors, thousands of highly radioactive corpses -and the highly radioactive "Fukushima fifty", some of them still alive- will be all entombed in a huge pile of concrete the size of Mt. Everest.


Caviar Emptor's picture

They're coming. Wage and price controls. Commodities futures limits. You heard it here. 

A Lunatic's picture

And shortly thereafter you will not be able to buy those twenty pound sacks of rice or beans at Costco any longer.

Dr. Porkchop's picture

The 'evil speculators' will be arrested comrade citizens! Line up for your bread! They have soup too, citizens!

Misean's picture

Well, boiled muddy water and scrappings from used vegetable bags, but it reduces the hunger pangs and it's cheap. You get a $1 bill as a napkin. Cotton and linen are very high brow, you know.

cossack55's picture

Methinks you are correct, Sir.

alien-IQ's picture

yet another chart busting through resistance...this is like...TOTALLY Bullish...totally.

rally on dude...

Rob Jones's picture

Perhaps I am not understanding correctly. I thought that excess reserves represented money that was effectively out of circulation, so that an increase in excess reserves would tend to be deflationary. While Fed Assets represented money that the Fed has injected into the system, which would be inflationary. So wouldn't having excess reserves larger and growing faster than Fed assets be deflationary?

Of course, I am seeing evidence of increasing inflation everywhere now, so something must be wrong with my analysis above. Could someone please explain?

bullandbearwise's picture

It's very simple. There is no inflation. Price increases are being offset by hedging and discounts.

Matto's picture

Banks need reserves to lend or speculate. Commercial bank reserves are currency in the safe + reserve account balance with central bank so central bank reserves aren't neccessarily currency per se. Commercial bank reserves are only portionally in circulation through currency out of the bank at the time, a mere fraction of reserves and broad money. Banks reserves are ramping and its used in balance sheet expansion rather then lending hence inflation while lending slows.


Hope that helps

Withdrawn Sanction's picture


If banks hold reserves, by definition, they are not lending.  One cannot hold reserves (or currency) and lend it out at the same time, ask Marie Antoinette.  Once a loan is made, the (former) bank's excess reserves are transferred to the receipient of the loan proceeds (or more likely, his/her bank account) through interbank reserves transfers or currency disbursement (unlikely).

While it is true, that banks need (excess) reserves to lend or speculate, the motivation for holding reserves is the deposit base (its liabilities), not its loans or securities (assets).

This difference is not merely semantic or technical, but goes to the heart of the Fed's problem:  it can pump liquidity into the system to its heart's content, but it cannot force banks to lend, and it certainly cannot force households and businesses to borrow.  This latter point is the principal reason the money multiplier is moribund.

The credit (lending) channel is clogged and pouring more liquidity into it does no more good than pouring more water into an already-clogged sink.  (The clog by the way are the masses of bad loans, which continue to grow to the extent they are not cleared and borrowers do not recover their ability to repay and their willingness to borrow.)

JohnG's picture

"Or, in English, the cumulative differential plunge recently is hella inflationary (as the imminent subsequent reversion to the mean means money going out of reserves and into currency)."


Mean reversion is a bitch.  That bites.

lynnybee's picture

 ....... oh dear.   even i know that is not good.   i'm trying to explain things to my friends & family ~~ no one believes me & thinks i'm nuts.    the other day i got yelled at by a family member telling that everyone is sick of my "doom/gloom" .    it's not doom/gloom ....... it's the facts.    now, i just stack silver in private & have hide my foodstuffs so they don't laugh at the 200 lbs. of rice & 50 cans of chicken. ..... someday they will respect me .

Mr Anderson's picture

Make sure they apologize before your share your rice. Also, make them read an Econ 101 book before they get any chicken.

Matto's picture

Theres some good videos at www.positivemoney.or.uk its UK centric - but the banking finance system is the same around the world so it might help people get the message. Actually Chris Martensons Crash Course videos are A+ and simple to follow for showingh others.