Monetary Base Hits Record, Ratio of M.B. to Fed Assets Approaches 1.0x As Excess Reserves Fast Overtake Currency In Circulation
The Fed's monetary base has exploded, and is now at precisely $1,997 billion: an all time high. Even as the Fed's balance sheet "declined" this week courtesy of collapsing Commercial Paper holdings by the Fed, which were at just $15.6 billion, and Fed assets dropped to $2,147 billion. The ratio of Fed assets to Monetary Base is now down to the lowest ratio since the Lehman collapse, at 1.08x, after historically hanging around 1.0x, as the chart attached demonstrates.
One thing to note is that even as the monetary base is rising, its only component that is increasing are bank depository reserves: the actual currency in circulation is declining as it can not keep up with the rate of increase in the excess reserves, and as banks refuse to push their vault holdings to the general population.
Which means that as the Monetary Base to Asset ratio approaches 1.0x, the one monetary derivative that will grow as rapidly as the Actual Fed balance sheet, will be banks' excess reserves. With Fed assets expected to hit $2.5 trillion by the time QE is over in March, that means that Excess Reserve have another 50% to grow from here, or another $500 billion. And as the consumer continues retrenching, one sure bet is that this money will not find its way into currency circulation but will continue being stored in bank vaults so long as the Taylor rule indicates that the Fed Fund rate should be -7% instead of 0-0.25%.
(3 votes)
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on Thu, 11/05/2009 - 22:51
#121791
Mexican standoff, don't flinch.
on Sat, 11/07/2009 - 13:32
#123495
My guess: About 6-9 months before midterm election someone presses down on excess reserves, while making the case to banks that, the way out is for you to extend credit....bump up money multiplier and velocity..... expand credit..... allow refinancing. This kicks in as stimulus starts to wane.
on Thu, 11/05/2009 - 23:18
#121812
So the expected bank bubble bust of October is delayed to March. Gold, equities to the moon and back (in March). Give up shorting( but it's so much fun). Is that what you're trying to say? How long can a sovereign fund its own debt? How long did it take for Weimar Germany, Argentina to unwind?Thank you for your work , the education, and entertainment. BD
on Fri, 11/06/2009 - 08:11
#122023
Is Japan still worse?
on Thu, 11/05/2009 - 23:39
#121826
Gold frozen at 1090. Don't anyone move!
Here's an article about silver by the great Ted Butler for those interested in what passes for a free market nowadays:
http://news.silverseek.com/SilverSeek/1257430207.php
on Fri, 11/06/2009 - 08:09
#122020
All your gold belongs to USA!
FDR
on Thu, 11/05/2009 - 23:43
#121840
The sterile, fiscally and monetarily diseased, government is jizzing all over the place, hoping to spawn a new spending spree from a bastardized, fully-subsidized and debt-ladened, consumer. Great, now we get the spread of financial Ben1Obama1 flu that infects everything from our banks to our health care system, which is all being kept alive off the leaching transfusions of savings from those that tried to vaccinate themselves against this very disease.
on Thu, 11/05/2009 - 23:54
#121851
Nice analogy.
on Fri, 11/06/2009 - 06:31
#121990
Tyler,
You said the Fed's monetary base exploded "at precisely $1,997 billion".
Where do you find these numbers?
I looked at st louis fed and found that the "St. Louis Adjusted Monetary Base" already spiked to 2024.378 bilion.
What's the difference with your data?
on Fri, 11/06/2009 - 08:08
#122018
Is Japan still worse?
on Fri, 11/06/2009 - 08:10
#122021
watch out for the Fed death Paw move. The showdown is on.