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Over $1 Trillion In Excess Reserves? Not A Problem According To Goldman Sachs
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As we pointed out recently, excess reserves at banking institutions have hit yet another all time record over $1 trillion, courtesy not just of the Fed's burgeoning reliquification efforts via direct asset purchases, but also due to its strategy to wind down the SFP program, and keep the Federal debt level under the legal cap, thereby providing even more liquidity to banks, to the tune of$185 billion. Yet if you thought that this inability to pass liquidity over into the broader currency pool was something to be concerned about (you know, that whole lending to consumers thing), you were wrong. Or so claims Goldman Sachs in this extended expose on why central planning is in fact good for Communist America. Also, for anyone who still doesn't understand how modern Fed-subsidized cash hoarding works, this primer should explain it all.
For your reading pleasure.
Many market participants and economists worry about the large volume of excess reserves in the US banking system, which just crossed the $1trn mark on the way to $1.3-$1.4trn by next March. Some see this as evidence that the banking system is not lending enough while others worry about inflation implications.
In our view, excess reserves are not the best indicator for adequacy of bank lending; more direct data are available from bank balance sheets and from the senior bank loan officers’ survey. Both of these sources confirm that bank lending is weak.
As for the inflation risk, we remain deeply unconcerned given the huge amount of spare capacity in the US economy. This gives Chairman Bernanke and his colleagues plenty of time to manage excess reserves, and they appear to be working on the tools to accomplish this.
The surge in excess reserves in the US banking system continues to worry and confuse many participants in the financial markets. In this comment, we explain the mechanics behind this surge and offer our interpretations about whether it is something to worry about. Our one-word answer is "no." We also outline the circumstances that would change this judgment and review and update our thinking on the tools the Fed has to manage the situation.
Q: What is the history of excess reserves?
Until September 2008, excess reserves were quite low – virtually zero by latter day standards. During the preceding 12 months they averaged $1.9bn, or about 4% of total reserves, and they never exceeded $4.6bn (in mid-March, during the Bear Stearns phase of the financial crisis). This was in keeping with the longer-term history of excess reserves. Except for unusual circumstances – in the wake of 9/11, for example – excess reserves were routinely only 1%-2% of total reserves.
In the most recent two-week reserve accounting period that ended on November 4, excess reserves were $1.06 trillion (trn). Most of this increase occurred between early September 2008 and year-end 2008, when excess reserves reached nearly $800bn. They fluctuated between $800bn and $900bn during most of 2009 with no clear direction. Lately they have moved up again. Absent offsetting transactions, we expect excess reserves to reach about $1.3-$1.4trn by March 2010 as the Federal Reserve completes its program of purchasing agency debt and MBS.
Q: What’s behind the sudden change?
The surge in excess reserves is a byproduct of a surge in the Fed’s balance sheet, from about $900bn prior to mid-September 2008 to about $2.2trn today. When the Fed decides to boost the volume of assets it holds, via expansion of an existing facility (e.g., making more loans in the discount window), creation of a new one (from the Term Auction Facility created in late 2007 to those created in the wake of the Lehman bankruptcy to support the commercial paper market), or direct purchases of assets (Treasury securities, agency debt, or agency MBS), its liabilities must go up by a similar amount.
The Fed’s two main liabilities are currency (Federal Reserve Notes) and bank reserves, which together constitute the monetary base. The Fed has other liabilities – for example, deposit accounts for foreign central banks and the Treasury Department. However, these items are not under the Fed’s control, and they do not move predictably in response to its other balance-sheet operations. Thus, a decision by the Fed to expand its assets typically results in a parallel increase in the monetary base.
Mechanically, this usually occurs by the Fed’s crediting a bank’s reserve account if that bank is the recipient of a loan (from the TAF, for example) or the seller of securities to the Fed. (For examples of how this works, see Todd Keister and James McAndrews, “Why are Banks Holding So Many Excess Reserves,” Staff Report No. 380, Federal Reserve Bank of New York July 2009, http://www.ny.frb.org/research/staff_reports/sr380.html.) In cases where the Fed’s counterparty is not a bank (another financial institution selling securities to the Fed, for example) the transaction will increase bank reserves as the seller deposits the proceeds at the bank where it does business. Conceivably, though, the Fed’s purchase of securities could result in an increase in currency instead.
The reason behind the latest increase in excess reserves, from about $850bn in mid September to more than $1trn currently, is a bit different. In late September the US Treasury Department announced that it would allow balances in its Supplemental Financing Program (SFP) to run down from $200bn to $15bn to provide more flexibility to finance ongoing operations as the it approaches the statutory debt limit. The SFP had been introduced a year earlier as a device to permit the Fed to shield the monetary base from its balance-sheet expansion; to do so the Treasury sold special cash management bills, effectively draining reserves in the process and holding the proceeds on deposit at the Fed. As the Treasury more recently paid down most of the remaining $200bn in bills that had financed this program, reserves were put back into the banking system. This increase in reserves was thus due to a reduction in one of those other liabilities that the Fed does not directly influence – Treasury deposits – rather than an outright expansion of its balance sheet.
Q: Is it therefore correct to say that the Fed determines the volume of excess reserves in the banking system?
Technically, the Fed’s balance-sheet operations determine the size of the monetary base, as indicated in the preceding answer, rather than excess reserves, which are just one component of the monetary base. The other two components are: (1) currency in circulation (which includes coin issued by the Treasury as well as Federal Reserve Notes) and (2) required reserves, which are a function of the size and compositions of deposits held at banks. However, the public’s demand for currency and coin has been quite stable in recent years, even during periods of extreme uncertainty, and required reserves are a function of the size and composition of deposits held at banks that are members of the Federal Reserve System. They also tend to move slowly over time. Thus, it is reasonably accurate to say that the Fed’s balance-sheet operations also determine excess reserves in the short run, but it is important to keep the other two components in mind when working through the mechanics of how changes in the monetary base can ultimately affect financial transactions, the economy, and inflation.Q: But aren’t excess reserves evidence of the banking system’s unwillingness to lend?
The answer to this is not straightforward. If we focus on a single bank, then the answer would clearly be “yes.” The bank has chosen to hold excess reserves, which currently earn only ¼%, instead of lending the money out at a much higher return. Under these circumstances, one can only infer that the risk/reward assessment is unfavorable for the loan – i.e., that the bank sees too much risk of default to make the loan worth more than the certainty of the small yield on excess reserves. (Lest one conclude that the payment of interest on reserves has therefore gotten in the way of bank lending, note that the bank could draw this same conclusion with zero interest on reserves if the risk of an outright loss on the loan looked too high.)
But when we focus on the banking system as a whole, then the judgment is not as clear-cut, as the extension of a loan by one bank will usually just transfer reserves to other banks. The borrower uses proceeds from the loan to pay workers, suppliers, etc., who in turn deposit the money in their accounts at various banks (possibly including the bank that made the original loan). As this occurs, reserves simply move from one bank to another. Although some can “leak out” of the banking system as cash, this leakage tends not to be significant.
Those who believe that excess reserves are evidence of a lending problem will be quick to note that while the volume of reserves does not change, the composition does. As the funds that the original bank has lent circulate through the banking system, the volume of deposits also rises. This in turn raises the amount of reserves that banks are required to hold. In theory, banks could keep lending out excess reserves until this expansion of their balance sheets converted all the excess reserves into required reserves – a process well known to students of money and banking as the “money multiplier.” In this framework, excess reserves still reflect unexploited lending opportunities.
However, such an inference ignores two important caveats. First, reserve requirements are quite low – only 3% on transactions accounts exceeding $10.7 million and 10% on those exceeding $55.2 million, and none at all on other deposits. Given these low requirements, excess reserves could still be quite high even if lending were strong; put differently, the money multiplier implied by these requirements is huge (perhaps one reason people worry about inflation). Second, long before bank lending reached the money multiplier limit, capital requirements are apt to limit lending, especially at a time when the consequences of too much leverage are so fresh in bankers’ minds.
More to the point, there are more direct ways of assessing whether bank lending is adequate, namely from the banking system’s balance sheet and from the quarterly survey of bank lending officers. From the former, we learn that the total outstanding volume of commercial and industrial loans is down 16½% over the past year; moreover, this decline has accelerated – to annual rates of about 20½% and nearly 25% over the past six and three months, respectively. Real estate loans exhibit a similar pattern of accelerating weakness, though at more moderate rates of decline (from about -2% year on year to -10% at an annual rate in the past three months). As for the bank lending survey, terms continue to tighten for business loans, albeit at a lesser pace, while terms on mortgages have tightened more significantly.
Q: Won’t the huge volume of excess reserves spark inflation once banks do start to lend?
The short-term answer to this question is “no;” the long-term answer is that “it depends on the Fed.” In our view, the difference between short-term and long-term, while not precise, is more likely to measured in years rather than months or quarters.Our lack of concern about inflation in the short run reflects the large amount of slack that is currently in the US economy. We have published extensively on this elsewhere, most completely and recently in Andrew Tilton’s “Deflating Inflation Fears,” Global Economics Paper No. 190, published on September 29, 2009. Suffice it to say that with the unemployment rate now at 10.2% and still likely to rise from here, bank lending of excess reserves would have to occur on a massive scale to prompt the changes in behavior that would have to occur to close the gap that now exists between GDP and its potential.
To put the point differently, excess reserves are not some secret sauce that creates inflation out of thin air, as many seem to imply when they worry about the inflation consequences without specifying how those consequences materialize. While it is always possible that inflation expectations could be influenced by the large volume of excess reserves, large changes in behavior are needed to transform those expectations into actual inflation. To facilitate those behavioral changes, lending would have to change on an equally impressive scale. And if this were to occur, Fed officials would be the first to see it – in their informal contacts with bankers, in the lending survey, on banks' balance sheets, and eventually in the data on spending (retail sales, factory orders and shipments, construction outlays, and the like) that we all look at every month.
As for the long term, excess reserves do have the potential to create inflation if left in the system for too long. This is where the Fed’s exit strategy comes into play. While we believe, and most Fed officials seem to agree, that it is far too soon to be implementing the exit strategy, it is not too soon to be planning it – or to be discussing it to ease public concerns.
Q: What is the exit strategy?
Given that the surge in the balance sheet that has given rise to the surge in excess reserves has a highly illiquid aspect to it, the strategy focuses on steps that either live with the excess reserves (step 1) or reduce it via a restructuring of the liability side of the Fed’s balance sheet (steps 2 through 4). In this regard, the comments by Fed officials in recent months reveal the following broad outlines, in probable order of implementation:
1. Increase interest rates, after laying the appropriate groundwork. The groundwork would come in changes to the rate commitment language as Fed officials see developments in resource utilization, the trend of inflation, or inflation expectations – the bill of particulars that was just added last week to this part of the FOMC statement – that tell them inflation risks are rising. As for the rate increases themselves, Fed officials appear convinced that they can lift their target for the federal funds rate and the interest rate on excess reserves (IOER) in tandem with one another, most likely by first reestablishing a small spread with the funds rate over the IOER. (Right now, IOER is 25bp while the funds rate is targeted in a zero to 25bp range and has generally traded about 5-10bp below IOER.)
The theory is that at higher levels of interest rates banks will have an incentive to arbitrage any tendency for the funds rate to drop below the IOER – why lend to another bank at a lower rate when you can lend to the Fed without risk at this rate? This theory did not work particularly well last fall because the GSEs, who are not eligible to receive interest on reserves, lent cash to banks at a federal funds rate well below the IOER. Fed officials believe that the unusually stressful circumstances that gave rise to this situation will not recur, at least to a significant degree, in circumstances where financial conditions are stable enough to start increasing interest rates.
2. Conduct large-scale reverse repurchase agreements. Fed officials have referred several times to such transactions, which would draw reserves out of the banking system as the Fed sold securities out of its massive portfolio with agreements to repurchase those securities at a later date. Reverse repos have been used before to fine-tune the volume of reserves in the system, but on a much smaller scale and for much shorter periods than would now be needed if they concluded that excess reserves should be withdrawn from the system in greater quantity. For example, the largest reverse repo position with dealers to date has been $25bn, and this was in the period immediately following the Lehman bankruptcy. Prior to that, the largest was $4.4bn. Most of these transactions were overnight or a few days at a time. In contrast, using this tool to reduce $1trn in excess reserves obviously requires both larger size and, presumably, longer time periods. Fed officials are reportedly hard at work determining how they would make the necessary adjustments.
3. Offer banks time deposits. The idea would be to “lock up” excess reserves, much as a commercial bank locks up deposits in a certificate of deposit, by offering higher rates on longer maturities. While Fed officials have mentioned this possibility off and on, it has not gotten as much attention as the reverse repos. The key question is how to price it so as to induce banks to give up the liquidity and discourage market participants from reading too much about the Fed’s intentions concerning future interest rates into the maturity profile of its offerings. This would presumably mean either pricing off of market curves such as the LIBOR curve or fixing specific spreads relative to the spot IOER.
4. Sell assets. When this idea first surfaced in the spring, Fed officials were quick to downplay it as an option, noting that such a move would have significant implications for market interest rates and stressing that they were a “buy and hold” institution. (The New York Fed has reportedly backed these words up with actions by hiring portfolio managers for its burgeoning portfolio of MBS.) More recently, however, it has been mentioned as an option, though it appears to be a last resort.
Many observers assume that asset sales would incur losses for the Fed as well as create problems of sending market signals. A full assessment of this concern is beyond the scope of this already long comment, but we offer two quick observations. First, the Fed has a fairly thick cushion of earnings power. In the fiscal year that just ended, the Fed remitted $34bn in profits to the Treasury. With an expanded balance sheet, this cushion is apt to grow. (Although we’re a bit surprised that the FY 2009 figure was not higher, the September remittance was a record $6.5bn.) Second, and perhaps more importantly, the Fed does own a significant amount of securities on which losses would not be an issue. At a minimum, those maturing within the next year can be redeemed at par as they come due. In this regard, the Fed's Treasury holdings include almost $100bn due within a year, with another $23bn of such paper in its agency portfolio.
Fed and Treasury officials could also reactivate the SFP once the debt limit has been lifted. In short, the Fed has a number of options to manage a high volume of excess reserves. At this point, however, we see no reason why they should be in hurry to do so.
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No, it's evidence that these banks are insolvent.
+10^12
Right on. Everyone's focusing on banks' assets, not on their liabilities. The "excess" reserves are just FDIC insurance by another name; it's obvious that the FDIC could not cover everyone's deposits if these banks were left to fail, choking on toxic mortgages.
If reserve requirements were raised to reflect changes in credit risk in our "new normal", the "excess" would simply be dropped. The Fed needs to pay interest to offset the banks' loses in lending income, since the banks still need to pay interest on their liabilities. Problem is, this just blows the monetary balloon bigger and bigger....
So is that bank holding company Goldman Sachs, that force for good, doing God's work and all, making a lot of student loans and small business loans and mortgage loans?
I do hear they're securitizing church construction loans against anticipated tithe revenues.
With respect to student loans... there is no longer a private student loan market. Democrats in Congress killed it and took it "in-house".
"As for the inflation risk, we remain deeply unconcerned"
deeply unconcerned, such terrible writing. Who you trying to convince G*ldman?
I am moderately surprised that exit strategy 4, liquidating assets on the Fed balance sheet, is not illustrated with the flaming skull of grim death.
Over $1 Trillion In Excess Reserves? Not A Problem According To Goldman Sachs
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Excess reserves are not a problem for big banks because this is an opportunity for them to charge the Fed interest on reserves as a bribe for not lending.
Its great to be be buying EDZ at these levels !!! Am loving it...mmm mmm good !!
oh come on tyler, everyone knows that the squid is doing God's work.....
Not a problem until they start to filter out and multiply in the real economy
As for the inflation risk, we remain deeply unconcerned given the huge amount of spare capacity in the US economy.
Yes lets ignore bond yields and the dollar decline, because there is only one source of inflation. Raw material costs don't count, servicing government debt does not count.
it is going to take sites like this to wake people up. goldman and fed and these big banks are NOT capitalist. This is not about freedom, free markets, or the U.S. entreprenuerial spirit.
As Tyler says, this is just straight up corporate banker facism and total control of government for their purposes.
how much longer does it go on though. how long before it seeps into the public at large.
people blame themselves. and most people just have no idea how much money Goldman and Fed buddies are printing themselves.
People simply have NO IDEA.
If the fed is willing to go so far as to swap out buckets of spy and spooz for cash from the IB's at the end of each day then surely the IB's would be willing to make loans without a care in the world as well no ? So then why are they clutching every last dollar they can get their hands on?
Does anyone know where the fed will get the money to pay the interest on the excess reserves once they raise rates? More specifically, will the interest payments come from the treasury?
I looked a while back and couldn't find the answer.
The Fed has the portfolio of Govt Securities that they bought with the new reserves in the first place. ie if they own FNMA 4.5% MBS paying interest and principle, as long as the FFR is below that rate, they will MAKE MONEY (as they alaways do!) and return their profits to the Treasury as they have been doing for almost 100 years now....no one on this site seems to understand Fed operations/accounting.
Kenneth, what is the strategy?
It's so obvious, the banks are holding on to reserves because they know another round of massive losses are coming.
Option ARM, ALT A, CRE, derivatives...
Yes correct, It amazes me how people of high intelligence complicate what is basic cause and effect. If you had a big bill due in the near future you would put money aside for its payment. Problem is, the banks bill is not a fixed sum. It's growing faster than they can protect against it. Wisdom would dictate that they should have liquidated the liability before it swamped the balance sheet. Ah! Mark to fantasy, so easy to adopt but so hard to be rid of. Its called backing yourself into a corner. Bankruptcy is the only reality - Mark it to zero and rebuild. It's not a disgrace to be able to breathe again
It seems that the definition of inflation is one that focuses on nominal asset prices. Let there be spare capacity and high unemployment the fact that the dollar continues to lose value is the real inflation that exists.
The large dollar holders of the world are aware that we are running trillion dollar deficits for the next 20 years and beyond and they are trying to exit their dollar positions without yelling fire.
Unfortunately, it will the US citizen with watch his/her saving disappear as the dollar buys less and less.
What a bunch of BS. This concern is beyond the scope of this comment because the concern is something our power brokers in Washington want to hide. Sure, the Fed could make money in the short term by selling about $125 billion worth of stuff, as interest rates have declined.
But then you have the remaining albatross of over $1.25 Trillion-- mostly of agency MBS. At some point in time, the Fed will not be able to roll these repo agreements and the losses will need to be recognized.
And as we saw recently, the Primary Dealers are not going to play the reverse repo game-- both becasue they probably can't... and because they don't likely want to. I would be suspicious if someone told me "hey, take this worthless asset... and I'll promise to purchase in back at par value in 5 years".
It's not like the Fed's word is "as good as gold". It's only as good as the worthless paper it's printed on.
Good point. A case of the negative pregnant. GS says that "the Fed does own a significant amount of securities on which losses would not be an issue," and then cites the Treasury holdings. Yeah, okay. And as to the MBS holdings? No wonder they wanted to make it "quick." The "minimum" is also the "maximum" they can do without those nasty "market signals," such as demonstrating that the MBS market, to the extent it's ever been let out of the bag, operates at about 22 cents on the buck. At least this will have the apparently desired effect of "shrinking" the Fed's balance sheet.
My impression of the artical.
The FED veil of responsibility as endorsed by a member bank, nauseating.
Can someone reconcile the following:
Gain in market cap is like $3-4T vs. an increase in reserves of $1T.
M1 is up a mere $13B or so since May-09, M2 +$70B & MZM (to include institutional $ funds) $120B.
..and M1 looking worse for next year...actually its on a 26 year decline..;-)
http://research.stlouisfed.org/fred2/series/MULT
have they looked at the money multiplier talked about??? am i in bizarro world, take a look on the st.louis fed site... money mult is BELOW 1!!! and moving lower, i.e money is not expanding the way those idiots describe... utter non-sense
Denninger's Tickerforum has been all over this. They have a good debate about the impact of the money multiplier approaching zero. It's in the monetary theory section.
So basically the bottom line is Buy the banks because they are the masters of the universe and us dumb schmucks don't stand a chance.
Smack the puppy who wrote that bollocks! Doesn't know his multiplier from his arse
This was a well-written article, but I have several problems with the exit strategies.
1. The Fed can't raise rates too much or too fast without setting off another recession. The bias will be towards a raise that is insufficient to contain those reserves.
2. Conduct repo agreements - didn't ZH report last week that a test repurchase failed because the primary dealers can't handle that much volume?
3. Offer banks time deposits - that's like paying protection money; where will they get the money to pay up unless they print that too?
4. Sell assets - how are they going to move all that garbage when CRE is about to collapse?
Here is how I currently understand the situation: the Fed has to figure out a painless way to drain $1.3T from the monetary base without destroying the banks. But, if they don't drain that liquidity, the dollar will be destroyed. It sounds as implausable as a cheesy sci-fi story. Kobayashi Maru anyone?
The solution to the Kobayashi Maru was to reprogram the simulation. Basically, change the rules and change the game into one he could win.
So what would be the equivalent in our situation? It would have to be something huge. A seismic shift in how everything works. Like a jubilee. Confiscation of precious metals. Total revamp of our political/power structure. From a wealth management perspective, almost impossible to plan for....
I should have specified "a seismic shift in how everything works orchistrated by the powers that be"
1. The only way the Fed can raise rates and not have them interfere with the liquidity-funded 'growth' is if they raise too little too late (See: 2000-2007). Greenspan's Interest rates hikes continuously lagged credit expansion. This is the biggest myth being perpetuated by the Fed. If they want to curb loose monetary policy, they can't walk a middle ground.
For example, image a person who wishes to go on a diet first decides to binge eat for a month. The following month, if we goes on a diet, he MUST consume less calories than he expends, thus forcing his body to make up the difference by converting fat into energy. What are the consequences? He'll feel hungry, he would have to avoid McDonalds, etc... generally unpleasant short term side effects. Or, do what the fed is doing, and eventually suffer a heart attack.
What the Fed is pitching when they say "exit strategy" is a promise to have your cake and lose weight too. It didn't work for Kirstie Alley; it won't work for the Fed.
the theme of the article is that these excess reserves
pose no risk so there is simply no need to do so
and certainly not any time in the foreseeable
future....those reserves could sit and grow
indefinitely without any palpable impact...
Like James T. Kirk, Cap'n Ben doesn't believe in the no-win scenario.
Gotta love the fiat economics
These guys don't believe (or it's inconvenient to) that there ultimately is an ABSOLUTE reference in terms of the value backing up paper.
Modern economics has convinced itself that we've gotten around this by keeping the river of money flowing while everyone is hanging on for dear life in little canoes in the rapids. "don't worry it will settle down soon, as long as we make the water run faster!"
At some point the canoes river go over the waterfall; the lucky ones will have gotten onto shore.
The trend appears to still be your friend. Lower dollar, higher gold price.
While I still have my long term gold position, I don't think having a shorter term position at this time is a good idea. While I wouldn't want to short gold right now, from a risk-return perspective I think having no short term position is the best option currently. But I did just see that this morning a gold mining company that I like, Premier Gold, reported good drilling results from its Hardrock project - http://www.goldalert.com/goldmining/premiergold - the company is also a lot less speculative than other junior miners because it has several projects in the pipeline and an experienced and solid mgmt team, including the CEO, who sold his prior company to a large base metal conglomerate.
Reverse repos "would draw reserves out of the banking system as the Fed sold securities out of its massive portfolio with agreements to repurchase those securities at a later date."
Explain something to a thicky like myself. If the Fed is committed to buying back the securities at some point, how does this qualify as removing money from the system? I realize that the money becomes more illiquid for the bank as it has been spent on securities, but if the Fed buys it back, doesn't the liquidity return to the system? Thus, in the long run reverse repos wouldn't really remove all this massive new liquidity at all?
reverse repos are temporary....the assets used
to make the transaction are eventually returned
to their original owners....
usually repo terms are fairly short duration....
That's the same question I have! I'll sell this to you and promise to buy it back. If it doesn't go away, I'll sell it again. Let's pass this hot potato around until we can find a sucker to keep it!
It seems as useless as sterilized FX interventions.
I don't understand why there isn't an effort to understand WHY the banks are increasing excess reserves?
Why do they think 0.25% interest from the Fed is better than they can get by lending? Is it just because of the economy and fear of borrower default? Is it inflation expectation? Or do they know something we don't about a coming need for liquidity?
As someone above suggested, it may well mean that they're insolvent, and they need to sit on that cash just to have sufficient assets on their books. In other words, they aren't "excess" reserves at all, and some portion of them can't be drained.
Yes I would like to know how to Unprint the keystrokes that printed. Is there a Delete Key (please God let there be a Delete Key engineered into the board)
Not the sharpest tool in the shed :))
Solution: lend back to the government. Voilà. There are, after all, no other customers in the market.
Do these numbers even mean anything anymore? I mean after all they can print as much "reserves" out of thin air as they want - right? Might as well say "we have infinite 'reserves'" or "we are God" for that matter. In fact, if you think about it by virtue of being granted the privilege of creating unlimited money out of thin air the federal reserve OWNS EVERYTHING in America (since they can always print whatever amount of "money" needed to buy it). Take this a bit further and you'll realize that American citizens are nothing but slaves of this bankster cartel known as the federal reserve. This, today, is the ugly reality of - what was once - "the land of the free". How long will you keep taking this?
That's right, if you own or control the printing press eventually you own everything else. Through planned expansion/contraction of the money supply and therefore inflation then deflation. Do that enough while increasing the heat on them through inflation without asset investments that can keep pace with inflation and taxes, and people will eventually lose all their stored wealth or investments (which represents the sum total of their labor hours) and they will need to liquidate their assets at any price to pay for food and shelter. In the end the banks forclose on the American dream.
Summary translation of Goldman's long-worded responses: Do not pay attention to the data in front of you (astronomical reserves vs. sharp drop in lending), but instead imagine what is behind the curtain, of course in a positive way. We provide guidance on this based on the sentiment, beliefs, and expectations provided by the managment and those that rule you. Now just leave us be, god's work doesn't get done on it's own you know.
All this movement of money seems like a shell game or three-card Monti. It is all very confusing, despite the quite clear language.
Thanks for the post! I am trying to learn!
(...and I hope there's not a quiz!)
Looking the Bloomie, the CPI index was 216 in September, up from a recent high of 212 in December, but down from 219 in September 2008. The past 12 YoY comps are down, but on a sequential basis CPI continues to increase.
Was this written by some 25 year old econ 101 student whose daddy know someone at Princeton. I thought Goldmanites were supposed to be the creme, where does this pompous little ass get off explaining (badly) how the multiplier works. Moreover, who was it written for? For morons by morons?
It completely ignores the fact that inflation is not, as milton friedman would have it, always and everywhere a monetary phenomenon, especially not when your currency is going right down the shitter, your creditors and energy suppliers are foreign and your budget deficit would sober up Dean Martin.
That money can sit in reserves as long as it wants, you tell the poor jobless fucker paying for $4 gas that there's no inflation and see how you get on. Even if prices of goods fall due to underutilisation, if incomes fall faster, thats relative inflation. Can't these goons understand that inflation is just a numeric proxy for changes in the standard of living.
I suppose if you are 25 and earn over $150,000 its hard to worry about such things.
The real banks are insolvent, but the investment house "banks" are using the money to pump up the stock market. Such a deal. cheap money, low volume, HFT and they can double their money in six months. Meanwhile they get assurances the cheap money won't end soon so there is no worries. They are too big to fail anyway.
Here's my question: How much of these reserves have been used for securities lending? The question isn't what loans are NOT being made (consumer), but what type of loans are being created with these reserves (loans to hedgies). Is this a source of reserves to lend to HFT hedge funds and other assorted rampers? Also: what type of risk does this pile of money allow banks to take for their own account? Maybe it's unrelated, but I find it hard to believe that there is NO relationship between the ramp in risk assets and these rising reserves.
Fed is just holding the line against mark-to-market. Phoney liquidity against phoney balance sheets. Phoney liquidity can't be let escape domestically or it will run amok. But they figure it can be let run offshore and their mates balance sheets can get a repair clip.
Fed is just holding the line against mark-to-market. Phoney liquidity against phoney balance sheets. Phoney liquidity can't be let escape domestically or it will run amok. But they figure it can be let run offshore and their mates balance sheets can get a repair clip.
This is just another spoke in the wheel of financial doublespeak.
It's pretty simple. The Federal Reserve provides cover for Banking (the Fed's owners) through:
A) Provision of funding to family members collateralized by illiquid securities of questionable worth. Results of these lending activities will benefit / burden the US Taxpayer depending on the outcome.
B) Concerted Public Relations Operations to cloak the underlying banking (Familial) agenda under a veil of beneficent altruism.
Big Bank GS compliments the program with missives such as this to rationalize whatever action is taken by the Federal Reserve.
The symbiotic relationship is quite natural under the surface.
oh, i love that. "excess reserves could be quite high" given the low reserve requirements. yes, your are correct. they very well could be. however, we all know that is not the current occassion. cmon, lie to me better than that.
I just lost threeve points of IQ.