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Total Reserves Hit All Time High
Total Reserves of depository institutions hit an all time high, just shy of $1 trillion. Who says the banking system isn't lending. Oh wait...At least, one can hope all that money is not being used to buy CIT stock. Alas, we will never know.
The total Monetary Base presumably rose by $62 billion, yet all of its was based on the $64 billion reserve increase from two weeks prior. So yeah, actual money in circulation dropped by $2 billion, even as banks used all that extra cash to purchase something.
What is curious is that as Total Borrowings have hit almost one trillion, the net number has declined, which is a function primarily of the Non-borrowed Reserves component skyrocketing, and hitting $692 billion. Why the increase? According to the latest H.3, TAF declined to $173 billion, TSLF was relatively flat at $43 billion, and Primary and Secondary Discount window borrowings were in line with historical numbers. Furthermore, required reserves was also flat in the low $60 billion range.
And the circular definition of Nonborrowed reserves provided by the ever useful Fed is: "Seasonally adjusted, break-adjusted nonborrowed reserves equal seasonally adjusted, break-adjusted total reserves less unadjusted total
borrowings from the Federal Reserve." Well, that's helpful. However what would be more helpful is to find out just what it is that banks are using this nearly $1 trillion in excess reserves for? Is it merely to buy Treasuries? Are they buying stocks? How about OTC.BB stocks? Is this one of those questions where the Fed is "protecting" us by not telling us the answer or by lying outright?
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By Kevin Brown in Singapore, and Peter Garnham and Chris Giles in London
Published: October 8 2009 15:09 | Last updated: October 8 2009 20:43
Asian central banks intervened heavily in the currency markets on Thursday to stem the appreciation of their currencies against the US dollar amid fears that their exports could be losing ground against China.
http://www.ft.com/cms/s/0/1e894c54-b40f-11de-98ec-00144feab49a.html
Historically, state intervention to manipulate currency doesn't work except with small societies...the sheer volume of the currency flow re USD is like sticking your hand in a river and expecting to get a measurable result. This invisible hand rules.
These nations know this...they're up to something.
The goal isn't so much to move USD. The goal is to devalue the individual sovereigns against USD. USD can drop all it wants against the basket so long as the home currency drops further. There's nothing nefarious about it. They're just in a panic about spiraling into an export depression.
For instance, S. Korea has been buying Dollar vs. Won every day for quite a while now. FB is correct; this is not their attempt to prop up the USD, but a move to keep the Won down (much easier to do).
Just a thought from the Marxian side of the economics field:
By devaluing its currency, the US is devaluing its import costs. This forces exporters to devalue their export prices, by devaluing their currencies. The US is stepping up its parasitic absorption of surplus value (rent) from its importers, forcing them to devalue their currencies to reduce their export prices. They will, in turn, be forced to expend a greater share of their economic activity on production for exports.
As a result US imports should increase, not decrease.
The key to understanding this is the unique position of the US: both exports and imports are priced in its home currency - unlike other exporters.
In terms of financial physics, you are 100% correct. However, these high profile comments can catalyze a response that develops its own tipping point action-reaction wave among investors... especially when sentiment on the USD is so negative. Everybody is on the same side of the trade... does that not scare anyone? (whisper: It should... everything is a dollar trade, and when the reversal comes, it will be bloody).
CARE TO ELABORATE ....DONT LEAVE ME HANGING
The US Dollar (measured by the DXY or any other way) is acting like a frightened herd that has bolted and is now in full panic mode. Every animal is taking cues from each other and those cues are run this way, or in the dollar's case, down.
IMHO the foreign banks aren't trying to stop the fall (which as you point out, is nearly impossible) but to simply signal the first few animals that it's time to move in a different direction. As in any herd on the move, it only takes a small movement to change every animals direction.
Watch herds of animals running full speed to see that sometimes just a few birds suddenly taking off in front of the animals is enough to change the herds direction.
Many were expecting, hoping actually, for the dollar (DXY) to hold around 76. Give it a reason to do so, such as public support for the dollar by foreign countries, and it might just do so.
Just my opinion.
Nicely put CogDis. Also, I think these herding tendencies leave patterns in financial markets, and the dollar just finished a beautiful one...
By Nicole Bullock in New York
Published: October 9 2009 00:19 | Last updated: October 9 2009 00:19
California on Thursday cut a bond sale to $4.14bn from $4.5bn and boosted the yields in a sign that investors are growing wary of the debt of cash-strapped US states, cities and other public borrowers.
The $2,800bn municipal bond market, where local governments raise money, had rallied recently, sending yields to their lowest levels in more than 40 years. Yields rose this week as concern re-emerged about the weak finances of many muni issuers.
EDITOR’S CHOICE In depth: US downturn - Sep-04 California seeks $4.5bn federal funding - Oct-06 Lex: Muni market conundrum - Oct-07California is the poster child for fiscal strife after a budget crisis, over closing a gap of more than $20bn. Lawmakers agreed to spending cuts, but the state is expected to continue to struggle with shortfalls.
“This sale is a sign that Wall Street has not forgotten that California has issues,” said Matt Fabian, managing director at Municipal Market Advisors.
The Golden State has been able to borrow heavily in the credit markets with particular interest from retail investors, who benefit from a tax break unique to munis and are comforted by the idea that US states do not default.
Just three weeks after ending a programme paying bills with IOUs, California last month raised $8.8bn of short-term debt, selling 75 per cent to individuals.
Retail investors bought less than half of the traditional munis in the latest sale, which also includes taxable debt and Build America bonds (Babs).
With Babs, the federal government is subsidising muni issuers for raising taxable debt for infrastructure projects. The idea is to alleviate supply backlog from the credit squeeze and to attract new buyers.
On the tax-exempt debt, California boosted yields, including 20-year bonds, to 5 per cent from a preliminary level of 4.63 per cent. On 30-year Babs, the state had to pay a premium of 75bps to where its existing 30-year Babs were trading as recently as last week, Mr Fabian said.
Tom Dresslar, spokesman for the state Treasurer’s office, said the bonds were sold “in a cold and inhospitable market”.
http://www.ft.com/cms/s/0/426d4ac6-b45f-11de-bec8-00144feab49a.html
I closed on a house today. My commission was $4500. The $8000 tax credit will cost every tax payer .00008 dollars (more or less). Just one house, but if you add all the other properties in this socialist program, it becomes a bill payment, a case of beer or two, a collar shirt or whatever. The fact is that this is a distribution of wealth. Clearly unconstitutional. This is a sad state of affairs folks. Where has our country gone? And I was born in Brazil. Wake up and fight tyranny.
It will cost a lot more when the no money downers default
Cost a lot more for who?? It shouldn't cost taxpayers a cent more.
Bernanke is buying mortgage-backed securities like they're going out of fashion. That's your government, buying risky mortgages, with your money.
Bernanke is currently buying mortgage-backed securities like they were going out of fashion. That's your government, buying risky mortgages, with your money.
Way to close the deal.
Hopefully, you'll be sure to pay 25% of that $4,500 in federal tax plus whatever myriad taxes might also applyto wherever you live, including SS# and the like, leaving a net of .....
Did you spend any money on gasoline driving around that you would not have otherwise except for the commission? You paid tax on that too. Likely the seller didn't pay you cash, probably so secondary taxes associated with who ever
prepared the check you're gonna cash, etc., etc., etc.
When it's all said and done government gets most of it back.
Was it a VHA loan though? 2.5% down? Think they'll
default before the federal government can get a full return of that $8,000 capital outlay? If so, that'll be a loss of tax revenue and that's the problem.
+10 and an amen!
thanks for the link...good article.
Shortly after Hurricane Gustav hit Louisiana in 2008, I had a employee of one of my clients approach me and ask for pointers on how he might go about getting a free generator from FEMA. He and his wife make over $130k in a parish where the median income is under $30k. I told him to go f*** himself. Today, this same SOB was asking me for pointers on how his mother might quit work and still claim unemployment. So, yeah, we've got systemic corruption in America. Maybe we survive this cesspool we are currently treading water in, but I dare say we aren't embarking on any missions to Mars any time soon.
It all boils down to the citizen, doesn't it?
George Carlin said it best: "Now, there's one thing you might have noticed I don't complain about: politicians. Everybody complains about politicians. Everybody says they suck. Well, where do people think these politicians come from? They don't fall out of the sky. They don't pass through a membrane from another reality. They come from American parents and American families, American homes, American schools, American churches, American businesses and American universities, and they are elected by American citizens. This is the best we can do folks. This is what we have to offer. It's what our system produces: Garbage in, garbage out. If you have selfish, ignorant citizens, you're going to get selfish, ignorant leaders. Term limits ain't going to do any good; you're just going to end up with a brand new bunch of selfish, ignorant Americans. So, maybe, maybe, maybe, it's not the politicians who suck. Maybe something else sucks around here... like, the public. Yeah, the public sucks. There's a nice campaign slogan for somebody: 'The Public Sucks. F*ck Hope.'"
primus, you've made my evening. The Public Sucks. F*ck Hope. LOL.
Very aptly stated, and very true.
A woman who lived behind me screwed the system repeatedly, claimed disability, didn't pay taxes, got her lipo and tummy tuck through the "system" and didn't pay a dime. She even rented her house and still was able to fool the county into no property taxes.
This is exactly why subsidies don't work, when you subsidize something you get a whole lot more of it, and for too long there's been too much welfare in the country. It's a road this government of ours never should have gone down and was never directed to in the Constitution. Now everyone's "entitled" to everything regardless of who pays the bills. Because the entitled don't see the dollars coming directly out of the neighbors wallet they say no foul, they always believe that it's the government who's paying, not me or you.
Until we get back to a system of stability where each bears his own weight we won't be viable.
And when the responsible hard working savers start getting screwed, like they are now, then these people, who previously would have never even thought about collecting unemployment are saying screw it and getting in line.
Oh, so very true.
Off topic - what is the procedure for posting a pic?
"even as banks used all that extra cash to purchase something"
25 months of FDIC prepaid insurance to cover the systemic losses that will be needed to maintain the historic, all-time, never before seen record reserves.
"However what would be more helpful is to find out just what it is that banks are using this nearly $1 trillion in excess reserves for?"
Window dressing. Perhaps the rug just isn't large enough to sweep EVERYTHING underneath it. The money will be needed to make the banks appear 'less insolvent' when the next round of insanely large writedowns hit. (i.e. Alt-A, CRE)
this abrupt rise in reserves is a bad omen - not because it reflects frozen credit but because the money is a predatory fund built up by large banks to eat smaller ones when massive closures begin....
http://dailyreckoning.com/beware-1000-bank-failures-on-the-horizon/
as bernquacke said, we need to let the darwinian survival of the fittest operate to remove smaller players...
burn bernanke at the stake....
i smell a bank holiday next week.
Unemployment is the new welfare. Another extension was passed today.
I have not seen this today. Link?
The reserves are for the CRE tidal wave about to hit.
Maybe I'm missing something, but isn't the reason non-borrowed reserves skyrocketed the fact that treasury was drawing down the general and supplemental accounts pushing that 100b or so into depository institution reserves...
Bank reserves may only take the form of cash, or deposits at the Federal Reserve. The growth of reserves can be attributed primarily to the Fed paying interest on reserves equal to the Fed Target Rate, which is currently significantly above the yield on short bills and the Fed Effective Rate.
If only it was used to buy CIT stock.
Remember - CIT is (was?) a big lender to small and middle business.
If any firm deserved a bailout, surely CIT was it.
Instead, we will have (already bailed out, twice - once directly, once indirectly through AIG intermediary) Goldman Sachs gobble them up.
And oh yeah - the last comment about CIT was by me, americangoy, so now you know whom to blame in your libertarian rage.
I leave tonight with an article about Zimbabwe's stock market, circa 2006. This should sound familiar to anyone in America in 2009.
http://www.guardian.co.uk/business/2006/apr/25/Zimbabwenews.internationa...
The bank holiday rumors have been floating for a while, but the rumblings seem to be getting louder. Can anyone confirm rumors of an early November bank holiday?