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WTF Did All That Printed Money Go?

ilene's picture




 

WTF Did All That Printed Money Go?

Courtesy of Lee Adler of the Wall Street Examiner

Normally when we think of printing money, we are talking about the Fed buying Treasuries, or some other securities from the Primary Dealers. The PDs then take the cash and buy Treasuries from the government. The Fed's asset base is thereby increased, and an offsetting liability, bank reserves on the Fed's balance sheet, also increases. As long as those reserves lie dormant at the Fed and banks don't use them to increase lending, there's not much problem with consumer price inflation, which the Fed pretends is the only thing that matters.

The Fed's been getting away with this kind of printing for a long time now, but there's been some seepage of money into financial assets, driving prices of bonds to the stratosphere and triggering "beneficial" rallies in stocks, and more malevolent rallies in commodities, particularly crude oil, but "core" consumer prices have lain more or less dormant. That lets Bernanke and Co. off the hook because that's what they use to measure inflation, and that's what the mainstream media reports. There's "no inflation." That's more or less in a nutshell what has been happening the past few years.

But there's another, different, type of "printing", and this one is literal, honest-to-god printing! Dr. Bernankenstein wasn't joking when he said the Fed had a printing press in the basement (cue evil laughter). In fact all 12 Fed district banks have printing presses in the basement, and they use them every week. The kind of "printing" I'm talking about is the actual printing of currency-cash, Benjamins et. al. Each week the district Fed banks usually print a total of a billion to several billion in cash, load it in armored trucks, and ship it out to the hinterlands, places like Staten Island, Cleveland, and Afghanistan. The cash shows up as a liability-Federal Reserve Notes- on the Fed's balance sheet because cash, Federal Reserve Notes, are a promise to pay... what? In other words if somebody shows up at 33 Liberty Street, NY with a wheelbarrow full of cash and demanded that the Fed pay up, well then...  never mind. Just take my word for it. It's a liability.

Also on the Liability side of the Fed's balance sheet as reported weekly in the Fed's H.4.1 statement are Treasury deposits, deposits by banks, also known as reserve deposits, reverse repos, Term Deposits of banks when the Fed offers them, and a mysterious category called Other deposits, which are vaguely identified as belonging to the GSEs, other government agencies (the CIA perhaps, hmm...?) and foreign official organizations, as well as the PPT (Plunge Protection Team)- the Exchange Stabilization Fund. But that's a whole 'nother story that we've covered before.

 

Fed Liabilities 2/15/12 - Click to enlarge

Fed Liabilities 2/15/12 - Click to enlarge

 

For those unfamiliar with the basics of Accounting 101, which is, oh, say 100% of us, the idea is something like physics where for every action there's an equal but opposite reaction. The actual equation looks like this Assets = Liabilities + Capital.

In other words, when there's an increase or decrease in a liability, there must be an equal offsetting increase or decrease in an asset, or a different liability, or some combination of the above. Forget about Capital for the time being-it's essentially irrelevant for central bank purposes and I don't want to confuse the issue any more than I already have.

Therefore, by the laws of nature, physics, religion, Robert's Rules of Order, and double entry bookkeeping, normally bank reserves on the Fed's balance sheet fall when Treasury balances rise, and vice versa. Think about it. The Treasury spends and where does it go? Into the payee's bank account and therefore up go the banks' accounts at the Fed. Last week the Treasury deposited a net of $0.9 billion to its checking account at the Fed as proceeds from debt sales more than offset the government's normal weekly outlays. This change was minuscule and normally wouldn't have any impact on the Fed's other liabilities.

But in spite of the small inflow into the Treasury's account last week, bank reserve deposits at the Fed rose by $37 billion. If it wasn't from Treasury spending, where did all that money come from? Here's your answer, the mysterious "Other" deposits fell by $36 billion.  Some "Other" paid entities with bank accounts $36 billion. That's a big number for one week, but the Fed gives absolutely no information on the inflows and outflows from these accounts. I there's there's a lot of 'splainin to do for moving around $36 billion in a week. So much for "transparency." The Fed only wants "transparency" if it will push the market up. Otherwise it's STFU.

Just the week before (ended February 8) the Treasury made an enormous withdrawal of about $71 billion to pay turn of the month bills. That's no mystery. It happens every month. About $59 billion of that showed up as reserve deposits as the government payments flowed into bank accounts and the banks instantly deposited the cash at the Fed since they don't have anything better to do with it. That too is as it should be.  But wait a minute! What about the other $12 billion? The Fed certainly wasn't going to sell $12 billion in assets as the offsetting transaction to fund the rest of the Treasury withdrawal. The Fed's stated goal is to keep its balance sheet stable at least through June. So where did that $12 billion come from?

The Fed seemed to need to jump through hoops to fund that Treasury withdrawal since not not all of it made it back to the Fed's balance sheet in the form of bank reserves. Since the Fed didn't liquidate any assets to fill the gap, it needed to increase a different liability. In addition to increasing reverse repos which is a way of borrowing cash, one of the things the Fed did was to debit currency outstanding by a whopping $8 billion. Up went the basement garage doors and out went those trucks loaded with pallets of bundled Benjamins. We don't know whether the Fed initiated the currency transfer on its own or whether the Treasury or somebody else requested it. It's just another of those things that's hidden behind the Fed's wall of obscurity and obfuscation that the Fed calls "transparency." Good news= Transparent. Bad news= Black Ops News Blackout.

Much to my surprise, the Fed did the same thing last week, dispatching truckloads of cash totaling $7.2 billion. While something similar occurred last February, this 2 week printing spree was a new record. Again, we don't know who initiated the "job", but we do know that last week's "request" did not come through the NY Fed. The biggest chunk of it was issued from the basements of the Cleveland and Richmond Feds, of all places, followed by Atlanta and San Francisco. OK conspiracy theorists, Richmond is just down I-95 from DC (and CIA HQ in Langley), but Cleveland? Were the ATMs at the Rock and Roll Hall of Fame having a busy week?

Rather than a decrease in a liability being behind last week's printing, this time the asset side of the balance sheet looked like the culprit, as the Fed increased its securities holdings by a net of $18 billion while only liquidating $7.7 billion in undefined "Other" assets and around a billion of other "stuff." That left a $9.6 billion increase in assets that had to show up in liabilities. Only a little over $2 billion of it appeared as reserve deposits. The Fed had to make up the difference by loading up the trucks with pallets of  cold, hard cash-$8 billion worth.

Currency Outstanding Chart- Click to enlarge

Currency Outstanding Chart- Click to enlarge

 

That 2 week, $15 billion increase in currency outstanding is a record. Furthermore, currency outstanding has now increased by 10% in the past 12 months. Here's a question. How and why does that happen in an economy that has only grown by 2.5%?

In fact, from 2003 until 2008, currency outstanding grew at a compound rate of 2.75%. Then from September to December of 2008, the Fed added 6% to the amount of currency outstanding. There was a similar surge from September 2010 and January 2011 and it's been pretty much pedal to the metal ever since. The last 2 weeks looks like an even greater acceleration. I don't know what to think of all this, but maybe it relates to confidence issues in some quarters. Perhaps it is related to the European financial crisis, as some players seek the "safety" of US dollars in safe deposit boxes rather than bank accounts, stocks, bonds, or gold. It certainly isn't due to a rapidly growing economy with a high demand for cash. And why Cleveland and Richmond? If that's not a WTF, what is? I'll leave the answers to your conspiratorial minds.

In spite of the curiousness of all this, the overall level of combined reserves on the Fed's balance sheet remains flat and is currently a neutral influence on market liquidity. As for the mountain of cash the Fed just put out on the street, consistent with the Fed's "transparency" policy it's a riddle, wrapped in a mystery, inside an enema.

Get regular updates the machinations of the Fed, Treasury, Primary Dealers and foreign central banks in the US market, in the Fed Report in the Professional Edition, Money Liquidity, and Real Estate Package. Click this link to try WSE’s Professional Edition risk free for 30 days!

 

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Thu, 02/23/2012 - 23:27 | 2191695 pmm009
pmm009's picture

Will someone please take a look at this and provide specific knowledge.  FED Balance sheet graphic from last year provided by SF FED:

http://webcache.googleusercontent.com/search?q=cache:XcADlPTulsMJ:www.frbsf.org/publications/economics/letter/2011/el2011-11.html+FED+income+statment+2011&cd=4&hl=en&ct=clnk&gl=us&source=www.google.com

The asset side of the FED balance sheet has about 1.5 T in Treasury bills and bonds today.  The link is dated, but the numbers are still representative.  The reserves on the liability side are the issue.

Treasury issues bonds and bills to PD's for cash (do they also buy on credit or based on their reserves at the FED?).  FED then buys the bills and bonds from the PD's creating bank reserves as a liability an the bills and bonds become FED assets.  OK, so far so good.  Seems like a self fulfulling prophecy if they can buy on credit or with reserves but???

Now, what happens if the bills and bonds mature while on the FED's asset side?  Does the Treasury give them cash?  Do they just go away?  The big question, if they mature and are cancelled how will the FED handle the bank reserves as they are still sitting there? 

Seems like a back door way to increase bank capital and force them to keep a much higher level of reserves indefinetly.  The gov. could always take this money back via law suits, executive action, etc.  Never the less, I don't see anyone willing to talk about or explain this.

That tells me they don't want anyone thinking about it too hard.

Wed, 02/22/2012 - 23:34 | 2187721 Shizzmoney
Shizzmoney's picture

I've been wondering this more and more ever since reading this site, analyzing the charts, etc.

My guess?  The cash is sitting on a server somewhere in the form of data at Goldman Sachs or JP Morgan and just sitting there, collecting interest in a "Office Space" style of scheme.

Hey, a $1 earned is a $1 gained.

Wed, 02/22/2012 - 23:17 | 2187667 brown_hornet
brown_hornet's picture

adr-  If housing is counted as 40% of CPI, why wasn't inflation 5-10% all through the oughts?

Wed, 02/22/2012 - 23:34 | 2187722 Dingleberry
Dingleberry's picture

Probably hedonics or some shit....these fuckers lie like rugs. We all know that there is no such thing as "inflation" as long as wages don't go up.  Gas, rent, utilities, medical insurance, tuition, etc. going up? No inflation here....move along now. And keep getting reamed.

Wed, 02/22/2012 - 22:50 | 2187602 adr
adr's picture

Umm, Downtown Cleveland has more bank regional headquarters than any other major city outside NYC. Key Bank, Bank of America, Hunington, Charter One, US Bank, PNC Bank, Dollar Bank, 5/3 Bank, First Merit, and AmTrust all call Cleveland home to major operations. Being home to a major Federal Reserve bank probably helps that.

I read today that 40% of the CPI inflation index is based on housing. No wonder they can claim inflation is running near 0. Other prices can go sky high and declining home values can offset nearly every aspect of that.

Last time I checked you don't buy a house every day. Perhaps the 40% weighting needs to be changed a bit.

Wed, 02/22/2012 - 23:40 | 2187741 Nobody For President
Nobody For President's picture

Housing 40%, and the volitile food and fuel 0%, like we don't need to eat or buy fuel. Taking a trip from northern to southern california for a family funeral. Gas on north cal coast this morning $4.36 gal (rounding up the damn 4.35 point 9 crap). Statewide average $4.05, up 19 cents this week.

But nothing to do with the cost of living...

With CPI and labor figures so diddled with, how the hell can you get a clue on what our so called monetary policy is - I think it is sort of "Ben Prints".

Really good article, 'cept it has been over 50 years since Accounting 101 - I'm gonna have to read it again. I just took a dollar bill out and really looked at it and explained to my wife that if I took it up to a Federal Reserve Bank, they would give me a dollar for it...

I think I'm gonna buy some more silver...

Wed, 02/22/2012 - 22:44 | 2187583 lasvegaspersona
lasvegaspersona's picture

At times like this I do a ''Weimar think"...in 1921 a million Marks was still a bit of money, by 1924 it wouldn't buy a cup of coffee. Imagine that by 2014 we could be thinking in terms of billions per gallon or trilllions per loaf. It really does get that crazy that fast. If the Fed is thinking hyperinflation then resolving a few billion in a year might be a nothing. Hyperinflation risk is real. As hard as it is to think in these numbers perhaps those with insider info are able to do so with less mental strain. 71 billion? phuh...

Wed, 02/22/2012 - 22:27 | 2187541 strangeglove
strangeglove's picture

We always put the money in the Volcano for long term storage

Wed, 02/22/2012 - 22:22 | 2187532 Coldfire
Coldfire's picture

Par for the ZombieconomyTM.

Wed, 02/22/2012 - 22:18 | 2187521 booboo
booboo's picture

or as Dominique Strauss-Kahn  say's, "it's a bloody mystery wrapped in a tampon and rolled up in a hotel bedsheet"

Wed, 02/22/2012 - 22:07 | 2187498 Dead Canary
Dead Canary's picture

Its an x file,  wrapped in a coverup, deep fried in a conspiracy theory.

Wed, 02/22/2012 - 21:49 | 2187457 celticgold
celticgold's picture

honey ... the dog ate the money ....

Wed, 02/22/2012 - 21:07 | 2187295 Hannibal
Hannibal's picture

Anyone with 'cash" in bank are pulling it out, hiding their stash at home and rightfully so, "banks can not be trusted", period!

Thu, 02/23/2012 - 03:53 | 2188093 John_Coltrane
John_Coltrane's picture

Yep, that's what I'm been  doing regularly for the last three years so just multiply that by a few million other paranoid, gun-toting, anti-government, Ron Paul types and you've got your explanation for the nice change in slope of the currency supply.  Its not earning any interest so why not be your own bank?

Wed, 02/22/2012 - 21:05 | 2187279 janxeh
janxeh's picture

"Bernankenstein wasn't joking when he said the Fed had a printing press in de-basement"

Fixed it for you.

Wed, 02/22/2012 - 20:40 | 2187195 SwingForce
SwingForce's picture

Answer: BLACK OPS  see Catherine Austin Fitts & Max Keiser

http://www.youtube.com/watch?v=6EE3K7SiO1U

Wed, 02/22/2012 - 21:06 | 2187281 donsluck
donsluck's picture

Agreed. Mercenaries, I mean Contractors, prefer cash.

Wed, 02/22/2012 - 20:14 | 2187112 2discern
2discern's picture

A mystery wrapped in an enigma wrapped in a burrito...and if the vote matters VOTE for Pedro !

Wed, 02/22/2012 - 20:02 | 2187076 RopeADope
RopeADope's picture

Were you under the impression the bankers were no longer bailing out the bankers with off balance sheet losses? 2018 is the generally accepted amount of time it will take to cover said losses at the current Fed embezzlement rate, sorry, i meant printing rate.

Wed, 02/22/2012 - 19:55 | 2187049 j0nx
j0nx's picture

Personally I think they know something and are spending it on that. That line from Deep Impact always stuck with me when the President tells his National Security Adviser that he is coming clean with the people because they've already spent more than they could hide. It's the only thing that adds up to me but maybe I'm just wearing a tin hat...

Wed, 02/22/2012 - 19:51 | 2187037 supermaxedout
supermaxedout's picture

The war in Syria is not cheap and is getting more expensive day by day. All the mercenaries and the al Kaida folks have to be paid. As the fighting increases the prices move up. The upfront payment is rising astronomical since a dead hired gun can not collect its money anymore.

Wed, 02/22/2012 - 19:43 | 2186997 steve from virginia
steve from virginia's picture

 

First of all, the 'new' dollars as Fed reserves are Eurodollars which is a form of double-counting as the cash appeared on the Fed's accounts 'once upon a time'. They have just been on extended holiday in America's recreational drug suppliers' home countries.

Cash in reserves doesn't matter unless there are redemptions (runs on the bank) then they go into circulation (but deleveraging elsewhere extinguishes the bank balance sheet faster than reserves can appear. Also, capital is extinguished.) In a debt-money system where lending has slowed to the degree there is deleveraging the increase in currency is not inflationary. In this instance, reserves are held on account at the central bank and must be changed to customer accounts which doesn't happen unless the bank is being put out of business by its customers.

This is a big difference from the bank lending its funds (reserves) BACK to the customers. Fat chance of that happening, if that were so there would be credit expansion and no reserves at all!

"That 2 week, $15 billion increase in currency outstanding is a record. Furthermore, currency outstanding has now increased by 10% in the past 12 months. Here's a question. How and why does that happen in an economy that has only grown by 2.5%?"

The same thing happened during the Great Depression. The Fed could hardly keep up w/ bank demand for cash currency, this was during a period when national banks could issue their own currency (US Currency) when authorized (as long as they could obtain US Treasury securities). Now as then, there is a demand for cash -- people don't trust electronic money. Post- MF Global who can blame them?

Wed, 02/22/2012 - 19:31 | 2186959 Widowmaker
Widowmaker's picture

Who the fuck cares, Angelo is free!

http://online.wsj.com/article/SB1000142405274870352900457616028161665234...

Not even a charge filed.

Not one person goes to jail, no one.

Wed, 02/22/2012 - 19:31 | 2186958 bugs_
bugs_'s picture

what if they didn't do as much as they said they did?

for example the stimulus 1 wasn't all spent out

since we are supposed to be skeptics and not believe their stats we can believe they did more but are not inclined to believe they did less.

Wed, 02/22/2012 - 19:29 | 2186950 johnQpublic
johnQpublic's picture

a riddle wrapped in a mystery wrapped in an enigma wrapped in a canoli

Wed, 02/22/2012 - 19:29 | 2186948 tony bonn
tony bonn's picture

excellent article!

"...the CIA perhaps, hmm...?"

there is no perhaps about it....the fed and the cia have a very dark and deep collusion....my guess is that some of the printing is due to economic reasons, but these last couple of weeks probably have to do with war pathing....the cia budget is as black as inner hell and i am sure some spook bagman makes regular trips for a little spending money....

Wed, 02/22/2012 - 19:26 | 2186937 ebworthen
ebworthen's picture

Poppy fields of Afghanistan?

Wed, 02/22/2012 - 19:25 | 2186929 non_anon
non_anon's picture

if your not in the "Circle" to know, then you don't have a right to know

Wed, 02/22/2012 - 19:29 | 2186926 Racer
Racer's picture

Promises to pay  AKA Tally sticks re-invented by the ChairSatan which will go the same way as the original tally stick did................

 

"In 1834, the tallies themselves were ordered to be burned in a stove in the Houses of Parliament,"

Wed, 02/22/2012 - 19:15 | 2186890 sgt_doom
sgt_doom's picture

"..there must be an equal offsetting increase or decrease in an asset, or a different liability, or some combination of the above."

Now where have you been hibernating all this time? 

Off-balance-sheet, unregulated credit derivatives, SPVs, SPEs, SIVs, SPACs, and beyond.......

Seriously, somebody's gotta pay for all those swinging IMF orgies, and what about those humongous Internet porn-watching bills coming due every week at the SEC?

TANSTAAFL???  Unless, of course, you're Warren Buffett who likes to talk up the super-rich paying their taxes, but whose company has been in tax court for --- how many years, now?? --- battling the IRS against paying their billions in back taxes!

And we all know Obama's advisor, GE's Jeffrey Immelt, can't be bothered having GE paying any taxes --- all they are capable of is raking in the revenues, and continuing to survive thanks to all those TARP bailout funds they received from Jane & Joe Taxpayers...

The problem with an incredibly shrinking tax base, is that sooner or later people begin to catch on when the Peter Penises and Vicky Vaginas of the American propaganda networks are forever claiming that the super-rich and corporations pay all those taxes, when those of us humble volunteer activist/researchers can't find any payments of those capital gains and corporate fed taxes....

MAJOR CONTRADICTION time.....

Wed, 02/22/2012 - 21:44 | 2187444 Zero Govt
Zero Govt's picture

it's not just the bailouts GE benefits from ...it's the US Govts shady Overseas Aid Bank that actually loans foreign Govts the money to then purchase GE crap

the Goldilocks economy is real, only she's a zombie

Wed, 02/22/2012 - 18:45 | 2186745 aerojet
aerojet's picture

My understanding is that the amount of actual cash in circulation doesn't vary much and that anything new printed is to replace old bills that get recalled.  Is there a way to tell how much cash was recalled and replaced by newly minted cash?  That's my only non-conspiratorial explanation. 

I think at the end of the day, a lot of what the Fed and Treasury have done could be described as accounting gimmicks to make the mess work out better than a complete systemtic collapse.  The way we lowly plebes think about "money" (e.g. cash and savings) and how the elite think about "money" are orders of magnitude different.  My life savings isn't even on the order of a half million and to these dudes, anything less than $100 million is just a rounding error.  So to them, our life savings' are just a pittance and who cares about it? At the end of the day, it's all just stupid human tricks at both levels.  You only perceive you have a savings and a retirement account--only the goods and services purchased are real, the money is not and never has been a real thing.

Also, can we stop with the physics analogies?  I don't think money follows the laws of thermodynamics at all.  It's a stupid comparison.

Wed, 02/22/2012 - 21:28 | 2187390 number cruncher
number cruncher's picture

Actually physical concepts like thermodynamics and fluid mechanics has a lot in common with money supply.. being a physicist and all.. but one thing comes to mind when I htink of what is occurring here is the heat exchange between something of a specific heat capacity (i.e. a bank or the market) and an infinite thermal reservoir (the fed)

Wed, 02/22/2012 - 23:28 | 2187698 illyia
illyia's picture

Funny - what I think of is water - seeking its own level. Like if/when there is a crisis-wave and we all go Its A Wonderful Life on it, surfing into Banksterland to grab our share of blow-up-rafts-in-a-box and Ben sits back and watches the Sheeple contentedly... knowing he just deliver 8 T in life boats.

Wed, 02/22/2012 - 21:03 | 2187271 donsluck
donsluck's picture

I, too, tire of the physics/money parables. Physics is, of course, physical. Money is only pretend. It's like religious faith, does amazing things but, at the end, is dust. Please folks, only money religion on this blog.

Wed, 02/22/2012 - 18:42 | 2186731 The Alarmist
The Alarmist's picture

Maybe it all went to Afghanistan and Iraq.

Wed, 02/22/2012 - 20:08 | 2187095 duo
duo's picture

Those poppy farmers only take Franklins.

Wed, 02/22/2012 - 18:41 | 2186730 dabug
dabug's picture

One word; Rockerfeller

Wed, 02/22/2012 - 18:26 | 2186641 Stack Trace
Stack Trace's picture

I live down the street from the Dallas Fed. Used to live across the street from it for years. Lots of trucks rolling out of that place. It is a large building but I assume that is to contain all the printing machinery.

Wed, 02/22/2012 - 18:12 | 2186592 LowProfile
LowProfile's picture

Thank you for the pretty peices of paper.  But if I must use legal tender, I would rather have nickles.  ktnxbai.

Wed, 02/22/2012 - 20:19 | 2187134 Debt-Is-Not-Money
Debt-Is-Not-Money's picture

 

 

How can our currency (dollars) even be "legal tender" as neither dollars nor Federal Reserve Notes are authorized in the US Code? Does this not make our currency illegal?

Wed, 02/22/2012 - 18:06 | 2186571 PatBateman
PatBateman's picture

I think the Cleveland comment was uncalled for!

Wed, 02/22/2012 - 20:42 | 2187204 Reese Bobby
Reese Bobby's picture

You'll always have Drew Carey. 

Wed, 02/22/2012 - 19:49 | 2187024 engineertheeconomy
engineertheeconomy's picture

the national debt is in the trillions, that is the Bankers owe the people trillions. when are they gonna pay up?

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