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A Record $2 Trillion In Deposits Over Loans - The Fed's Indirect Market Propping Pathway Exposed
Perhaps one of the most startling and telling charts of the New Normal, one which few talk about, is the soaring difference between bank loans - traditionally the source of growth for banks, at least in their Old Normal business model which did not envision all of them becoming glorified, Too Big To Fail hedge funds, ala the Goldman Sachs "Bank Holding Company" model; and deposits - traditionally the source of capital banks use to fund said loans. Historically, and logically, the relationship between the two time series has been virtually one to one. However, ever since the advent of actively managed Central Planning by the Fed, as a result of which Ben Bernanke dumped nearly $2 trillion in excess deposits on banks to facilitate their risk taking even more, the traditional correlation between loans and deposits has broken down. It is time to once again start talking about this chart as for the first time ever the difference between deposits and loans has hit a record $2 trillion! But that's just the beginning - the rabbit hole goes so much deeper...
There are many reasons why the deposit hoard has continued to rise in the past 4 years, and according to the latest H.8 statement just hit a record $9.173 trillion as of December 12. This compares to $7.259 trillion in the week after the Lehman collapse: an increase of $1.9 trillion.
One contributing factor to this surge in deposits is the collapse in the Commercial Paper market (driven in big part due to the ongoing lack of counterparty faith as well as the ongoing Fed intervention in every possible market which has the paradoxical impact of eliminating confidence in the system and the desire by corporations to be able to fund themselves at a moment's notice come hell or high water) coupled with the unlimited insurance of various deposits courtesy of the government's Transaction Account Guarantee (TAG) program, which however will expire in 5 days, and which has made deposits the preferred pathway of preserving liquidity "dry powder" for both corporations and individuals.
But perhaps the biggest driver of the surge in deposits is the Fed's own ongoing liquidity tsunami, which using various traditional and shadow conduits has injected nearly the entire $2 trillion amount into the banking system (as Excess Reserves, Reverse Repos, Deposits with Federal Reserve Banks, and Other Fed Liabilities which combined conveniently amount to just about $1.8 trillion), which then via reflexive shadow pathways, most notably repo, has translated into an actual excess of cash to the bank's balance sheet: perfectly fungible cash which can then be used for any generic purpose: such as prop trading under the guise of "hedging" as JPM so vividly demonstrated a few months back. More on this in a second.
While the source of the cash for record deposits - i.e., the ever so incorrectly classified "cash on the sidelines" is debatable (but not much), one thing is certain: the total issuance of loans since the Lehman collapse in September of 2008 has barely budged and has increased by a whopping... -120.6 billion! That's a negative.
Indeed, in the past 4+ years, bank loan issuance has declined from $7.27 trillion to $7.15 trillion! To keep up with the increase in deposits, at least based on the historical relationship between deposits and loans, this number would have to be $2 trillion higher today, or some $9.2 trillion - money that would be going to individuals, households, and small, medium and large businesses to fund expansion and growth (instead the gross debt issuance frenzy we have seen over the past 3 years is only to refinance existing debt and lower rates: i.e., not only zero, but negative net issuance).
At least we can put to rest any debate whether banks are willing, able or even interested to lend out money in an unprofitable Net Interest Margin environment, such as that the Fed has created currently courtesy of ZIRP and courtesy of constant fronrunning of the Fed's purchases on the long-end.
If that was all, we could end this post here and tell readers to make up their own mind about what is truly happening behind the scenes. But there is much more to discuss about this record excess of deposits over loans. And the "more" is something that was only recently discovered, courtesy of a massive blunder by none other than JPM's Jamie Dimon. It is important to expose the "more" as it is in stark contrast with the conventional thinking adopted by much of the mainstream media (and even us until some time in May of 2012).
The conventional, or wrong way of thinking about the excess funding used by banks is best exemplified by this following headline from a August 20 Bloomberg article titled, "Banks Use $1.77 Trillion to Double Treasury Purchases."
In it the BBG authors note, correctly, that there was an excess $1.77 trillion in deposits over loans: a number which has since risen to $2.019 trillion as this post observes. Where the article is dead wrong is in its explanation of what the banks use said money for. Because while banks may or may not have used the excess cash for Treasury purchases (recall that we first highlighted that Primary Dealers held a record $140 billion in net Treasurys as of the latest week), the reality is that US Treasury paper is most certainly not what the final use of proceeds is.
Recall that as we have been describing for the past 3 years, a primary driver of "growth" in the US market, if not economy, has been the ability to transform asset and liability exposure off the books using various shadow conduits. The primary such conduit is and has always been repo funding (and various other forms of limited and/or unlimited rehypothecation made so popular after the collapse of MF Global). What repo does is it allows banks to exchange their holdings of Security X (in this case trasury) in exchange for nearly par cash courtesy of some custodian bank - and when it comes to the US non tri-party repo market there are only two: State Street and Bank of New York.
The biggest benefit of Repo financing is that the bank can still hold the original pledged security on its books for Fed "supervision" purposes, even as it obtains fungible cash equivalents via repo, cash which it can then use for whatever downstream purposes it desires such as purchasing stocks. This is where it gets confusing, and certainly confused our friends at Bloomberg who arrived at the wrong conclusion in their analysis.
A good summary of what really happens under the hood when account for repo comes from Citi's brilliant head of credit, Matt King, and his legendary note from September 5, 2008 "Are The Brokers Broken?" (which should be required reading for everyone), where he described the scheme as follows:
Paragraph 15 of the accounting rule FAS 140 stipulates that the amount referred to on the balance sheet statement need only be “collateral pledged to counterparties which can be repledged to other counterparties”. A further portion of the financial instruments owned – which is in many cases substantial – is reported in the 10-Q footnotes of “collateral pledged to counterparties which cannot be repledged”. An example might be tri-party repo, where until recently some custodians could not cope with the administrative complications of rerepoing received collateral. Although the assets themselves have always featured on the balance sheet, the fact that this non-repledgeable portion too is funded on repo is less widely appreciated. The combined volume – once it is arrived at – comes close to 50% of all financial instruments owned.
And this is where everyone loses the plotline, because the reality is that virtually half the balance sheet of US brokers can be repoed back to custodians, in the process leading to double, triple, and x-ple counting a single asset serving as deliverable collateral, and using and reusing (if need be), the cash proceeds, net of a token haircut (or no haircut in the case of English rehypotecation transactions), every single time purchasing riskier assets to generate a return on a return on a return of the original investment. In short: the magic of off-balance sheet accounting which allows brokers to abuse their already TBTF status and lever any underlying asset to the helt and beyond.
Think of Shadow Banking as your own in house synthetic structured product, allowing virtually unlimited leverage.
"Pure Hogwash!" One may say. "These are ridiculous allegations with no base in reality." One may add. We thought so too until the JPM "whale trade" fiasco happened, and all the dirt of the synthetic deposit-funding repo pathways was exposed for all to see.
Presenting Exhibit A, which comes directly from page 24 of JP Morgan's June 13 Financial Results appendix, in which the firm laid out, for all to see, just how it is that the Firm generated over $5 billion in prop trading losses in its Chief Investment Office unit - a department which had previously been tasked with "hedging" trades but as it turned out, was nothing but a glorified, and blessed from the very top, internal hedge fund, one with $323 billion in Assets Under Management! To wit:
The chart above shows the snapshot - from the horse's mouth -of how a major "legacy" bank, one engaged in both deposits and lending, decided to use the "deposit to loan gap" which had swelled to $423 billion at just JPM (blue box in middle), and led to $323 billion in CIO "Available For Sale securities."
What happened next is well-known to all: JPM's Bruno Iksil, together with Ina Drew and the rest of the CIO group (all of whom have since been dismisses), decided to put on a massive bet amounting to over $100 billion in notional across the credit spectrum (the one place where a position of this size could be established without becoming the entire market, although by the time it imploded Bruno Iksil was the market in IG9 and various other indices and tranches). The loss was just as staggering, and amounts to what is one of the largest prop bets gone horribly wrong in history.
Now the JPM spin is well-known: the CIO was merely there to "hedge" exposure, as a direct prop bet would be illegal as per the Volcker Rule, not to mention the avalanche of lawsuits and the regulatory nightmare that would ensue if it became clear that the firm was risking what amount to deposit capital to fund massive, highly risky prop trading bets. Which, when one cuts out the noise, is precisely what JPM did of course, especially since the "hedge" trade blew up just as the market tumbled in the spring of 2012, a time when it should have otherwise hedged the balance of the firm's otherwise bullish posture. That it did not do this refutes the logic that this was a hedge, and confirms that what JPM was doing was nothing short of using an internal, heavily shielded hedge fund, which had $323 billion in collateral as investible equity, to trade away, knowing very well no regulator would dare touch JPM. This is further compounded by the fact, that as one of only two Tri-Party repo dealers in the market (and by far the greater of the two, the second one being the innocuous Bank of New York Mellon), JPM could run circles around both the entire market, and the Fed, if it so chose, courtesy of its monopoly position in the repo market.
* * *
So where does that leave us?
Well, instead of JPM's "deposit to loan gap" discussion, whose massive loss (but, but, hedging...) was the dominant topic on the airwaves for a large part of the summer of 2012, we have the US financial system's "deposits to loan gap" - amounting to some $2 trillion - to contend with. But the punchline is that whereas JPM's decided to express its prop risk using fixed income instruments, and certainly not to buy simple boring Treasurys as the Bloomberg article speculated earlier, nothing prevented JPM from simply bidding up other risky assets "as a hedge" such as stocks, or crude, or slamming silver, or doing anything else it was perfectly entitled to do using the repledging mechanics of the repo system. And since Jamie Dimon has not yet given a full P&L breakdown listing CUSIP by CUSIP just what instruments JPM depositors were funding - either directly or indirectly - nobody actually knows just what securities the CIO was long or short.
The question then becomes: just how are the remaining hundreds of depositor US banks expressing their own iteration of the JPM CIO "deposits over loans" problem? Are they all trading CDS in the IG or HY space? Are they using repo proceeds from TSY purchases to generate fungible cash? Or are they simply using the cash directly and using it to big up risk assets?
All these questions will remain unanswered as it is in both the banks' and, therefore, regulators' best interests to keep the accounting behind repo, pledging and hypothecation transactions as is - nebulous, complicated and even contradictory (especially when it comes to FAS 140 whose paragraph 15 (d) makes borrowed versus pledged transactions off balance sheet, while paragraph 94 makes them on balance sheet), as overhauling the reporting requirements would expose just how much double-, triple-, quadruple- and more dipping America's major money centers are engaged in when it comes to propping up the market: dirt that would put the result of any "Audit the Fed" outcome to shame.
And after all, why should the Fed dirty its hands when it can simply provide the banks with the cash resources to do what they need without it having to engage in what is certainly illegal based on any of its charters. Because while the Liberty 33 Plunge Protection Team may, on occasion, engage the Citadel trading desk to buy ES at times when nobody else will step up, it certainly will not have to do so all the time if it were to flood banks with $2 trillion (soon to be $3, then $4 trillion as QE4EVA drags on and on and on...) in perfectly fungible capital, which can be metamorphozed from innocuous Excess Reserves to perfectly tradeable cash using two or three simple shadow banking transformations.
In that regard, we have to thank Jamie Dimon and his firm for being the biggest beacon of light in 2012, because without the generous contribution of the JPM CIO desk, and its explanation of how the "deposit to loan gap" we would all still be in the dark, and just like Bloomberg, assume naively that all a bank does with excess trillions in deposits, is to buy boring old treasurys.
Instead, we now know the truth, and for that Jamie - you have our sincerest gratitude.
* * *
Finally, the indirect implication of all this is for all those demanding that the "money on the sidelines" leaves the sidelines and is once again used by companies. The problem is that said money is already used by banks as prop trading capital: likely all $2 trillion of it (and if re-hypothecated, more) - in other words, if instead of being used by banks to prop up corporate stocks and risk in general, companies revert to the old mentality of actually reinvesting in themselves - i.e, CapEx spending, hiring new people, even M&A and generally growth - the fungible cash used by banks as investing capital will be redeemed and result in commensurate sales of stocks. Which means that should said "sideline capital" ever be pulled back by the same companies who are now granting, unbeknownst to them, direct asset management duties of said cash by the US banks, then watch out below, at least in the S&P. Which, as the Fed has made all too clear, is the only thing that matters in the New Normal.
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Somebody smarter than me help me out here. How can deposits ever equal loans in a fractional reserve system? I'd expect at least a 10 or 12:1 ratio?
How can deposits ever equal loans in a fractional reserve system?
When deposits go past the loans out at your ratios.
Good comment. So then the banks could say they are fully funded (obviously ignoring the re-hypothication, leverage etc. of their ill gotten deposits) if their loans all go belly up? Now THAT's an amazing view!
This chart still messes with my head though. I'm assuming the deposits / loans charted are on the normal banking system and is not reflecting values from the shadow banking system? It would also be interesting to understand what their composite reserve-to-loan ratio used is. But the article's point is still clear. FED money is making its way into all kinds of asset purchases leveraged to who knows what via the big slimey banks. It won't stop any time soon either I'd guess. Go long EVERYTHING!! <sarc on>
When deposits go past the loans out at your ratios.
************
That's true-but when there is no set ratio because of Sweeps which totally distort deposits and thus reserve requirements-then maybe the explanation is as simple as corporations that borrowed to the max and deposited that money in their accounts-which show as deposits and have now reached their limit and are simply not borrowing anymore-but the deposits aren't going anywhere either-
These figures seem to jive with the chart above--just a thought-
***********
You could hear this great news pretty much anywhere -- maybe from Bloomberg, which this spring hailed the "surprising strength" of corporate balance sheets. Or perhaps in the Washington Post, where Fareed Zakaria reported that top companies "have accumulated an astonishing $1.8 trillion of cash,"
According to the Federal Reserve, nonfinancial firms borrowed another $289 billion in the first quarter, taking their total domestic debts to $7.2 trillion, the highest level ever. That's up by $1.1 trillion since the first quarter of 2007;
http://www.marketwatch.com/story/the-biggest-lie-about-us-companies-2010-08-03
@ your question disregarding the "smarter
than me" part.. u be smarter !
this chart seems to represent a systemic collective.
one bank's loan is a deposit in another bank if
not back into itself. even "invested" or spent
money mostly is represented as a deposit. the interest
payment is a hard debt that must come from future
borrowing or stealing or slavery or murder, there
the usury and evil at the heart of the failed,
eternal growth(cancer)dependent, money system; why it
will fail ugly. it seems
.
2008 represents the bust of the fraud patch employed
in 1971. imo
.
here a great link i pass along.
Talks
Jill Bolte Taylor's stroke of insight
Filmed Feb 2008 • Posted Mar 2008 • TED2008
http://www.ted.com/talks/jill_bolte_taylor_s_powerful_stroke_of_insight....
.
" dog's breakfast " k.v.
.
the fed and banks are the dog, we and the world are the breakfast, or so they think.
this article made my nipples hard.
long ropes, short drops.
I have no idea what this chart means. But I am buying gold/silver.
Cost of Raising a Child Up to $235K—Before College
http://www.cnbc.com/id/100338117
Just don't reproduce and you'll be RICH!
That's Tax Genocide on Traditional Americans, Jobe ! Did CNBC tell us how much it cost us to raise a cradle to grave, govmint "child" ? State secret that !
I still feel that the price of gold will have to be reset and play an important role in how "the new world order" will play out.Meaning that the U.S. Dollar by itself will one day no longer be the worlds' reserve currency.What will be the new standard is still a mystery and dependant on negotiations but what we all know as "money" may one day no longer even exist.
Bernank, et al must have a plan for when they have to transition to a new currency. I wonder what that looks like?
http://www.youtube.com/watch?v=cJg99tGolNI
Banks now securitize their assets by selling to Bernanke instead of to the sheeple. The better question is who in the government is actually reviewing these purchases? Or do they just buy up everything piecemeal? The risk of fraud could be even worse with Bernanke as the purchaser.
You have it upside down.
The gov is forcing the Fed+Primary Dealers to be the suckers of last resort
It's not like you can feel bad for the Fed and the reserve system. They signed on for this duty, and made a damn good living.
They know when the dollar dies it's a sovereign problem again, too.
You know lots of double dippin' bureaucrats are paddin' their pockets with gold .... cynical whores that they be !
Oh God, no. The quicker the Fed collapses the better it is, but the Fed is being setup as a bad bank right now. It's collapse is not only inevitable in my opinion, but it is the plan.
The sovereign problem is the ONLY PROBLEM. Owning money to your own citizens is nothing. Financial repression will be used.
The issue is when USA owes money to Russia and China.
There are only 3 ways to pay sovereign debt, and only 3:
- Goods (exports more than imports)
- Labor (slavery)
- Blood (war - US Navy is moving to the Pacific)
The issue is when USA owes money to Russia and China.
There are only 3 ways to pay sovereign debt, and only 3:
- Goods (exports more than imports)
- Labor (slavery)
- Blood (war)
************
You missed the big one-which is printing and there is no reason to default-the debt is owed in USD's--it would be different if it was owed in other currencies-but it isn't-
It doesn't mean the bond market wont puke though and if it does-the whole world is fucked-- i mean- fucked worse than it is-
Neither China nor Russia have accepted PRINTING.
That's why Russia attacked the republic of Georgia in 2008 and China is claiming all South China Sea islands as payment for the debt. China can't allow Senkaku islands to go japan's way, since they consider them as debt payment. Russia withheld land inside Georgia as debt payment.
Russia only recently "forgave" the debt to North Korea by gaining access to North Korean mineral mines.
They are getting paid with minerals.
http://www.guardian.co.uk/business/2012/sep/18/russia-writes-off-north-k...
Neither China nor Russia have accepted PRINTING.
Bam. Nail on the head. That's how you know war's coming. The US ploy is to have the war BEFORE floating the new currency, so we can stay on top.
Something similar.
I actually think that they are pushing China to take a loss thus avoiding war. In the meantime the Navy is still moving to the Pacific and all ASEAN countries have aligned with and "asked" USA for help........against China. Nobody likes chinese in that area, nooooooooobody.
With Russia is different, it's just a matter of price. The IMF gave Yeltsin 21 billion dollars for free in order not to oppose the Kosovo war. Putin has a price, also, at least I'd like to think so.
Putin's old enough that he can be had cheap. His perspective is short-term compared to the Chinamen. And we 'Merkins know we can buy out our own debt at a MAJOR discount when it comes down to it.
Neither China nor Russia have accepted PRINTING
*******************
Actually they are accepting printing and they have no choice-because they're doing the exact same thing-in fact China makes the US look like small potatoes when it comes to printing and if they want to keep exporting they will have no choice but to keep purchasing UST's and holding USD's in reserve-the CNY is pegged to the $-
http://www.acting-man.com/blog/media/2012/04/CBs.png
China tried to buy Unocal several years back and the US blocked them-the only way China can repatriate those USD's back into the US-for the trade balance to reverse and that wont be happening for a long time-if ever-
I've been hearing for years that China will dump the $--no they wont-or their own currency will collapse-
Let's see China unpeg first and then we'll see how strong the Yaun is-standing on its own-
Ugh, the South China Sea has nothing to do with the Senkakus. A different fucking sea, dude.
Calm down and breathe...
It doesn't matter.
You get the point
according to Kyle Bass (per last week's "an hour spent with Kyle Bass segment"), it will be War
This is bad, because if loans slow down its a sign that consumer spending and investment is down.
The fake economy can only work within an acceptable range of the "real" economy before it starts to actually destroy the real economy.
It has already destroyed the US economy. USA has been in depression since 2006, probably earlier.
The fake economy is FORCED to buy stocks and commodities because there's nobody else to sell them to. The Primary Dealers basically own everything, almost all S&P. That's why NYSE bankrupted and had to be bought up. Not much left to trade.
Just like during the 30s, Primary Dealers are selling stocks to each other. Eric Hunsader has been tweeting that during many days 40% of BAC shares were traded in Dark Pools.
http://twitter.com/nanexllc/status/283257114191867904
We're back to 2008 when Primary Dealers owned everything and Hank Paulson was forced to let Bear Stearns and Lehman go in order to dump securities in the market for trading purpose.
This an INSECT TRAP. Primary Dealers are all in; they just can't get out, except for ..........DEAD (like Bear Stearns, Lehman or MFG)
depression began in 2000.
Tax Genocide is well underway .... there is no going back .... only armed revolution is left .... and the good guys might lose like the White Russians ! Hunker down comrades .... the worst is yet to come ! Happy New Year !
First off, this is the most important thing that I have ever learned on ZH.
Next, this means that the US economy is just Enron on steroids.
God help the sheeple.
Good for you.
Somebody who is willing to understand.
True, this post really puts the meat into the sandwich.
But this is what we knew they'd really be trying to do. They can't help themselves. Why worry about being a 'criminal', or stating junk collateral as AAA, which you don't even possess nor have unique claim to, when criminals are given bonuses and invited to Presidential fund-raisers and left walking around free, even after they're caught red-handed stealing from ('vaporizing') muppet accounts. The whole system has gone right off the rails and is headed for the bottom of a ravine. They're all just making dopey, "weeeeee!!" noises and pocketing the rail-company's silverware on the way down.
Seriously, they're so intoxicated by klepto-mania that they literally can't help themselves or stop themselves anymore. They are literally addicted to the thrill of stealing.
Additionally,
I did check out the recommended read,"Are the brokers broken?", and I was stopped in my tracks by the first line:
"Nearly half of brokers’ own assets are funded on repo"
And this was written over four years ago.
Talk about a house of cards built upon a house of cards built upon quicksand.
It's here, with Tyler's comments on its significance:
http://www.zerohedge.com/news/and-now-present-are-brokers-broken-reprise
LuLz. Main embed was removed but this comment from 'manthong' was irresistable:
"I propose it be called the Progressive Overnight Notational Zirp Interchange."
this amount of spread will never go away (China refueses to buy)!
So the ussa central moved the next load of USA debt into the USA. Like Japan the debt to GDP can be larger if the debt is held by the americans.
WTF speaks for itself
Amazing what sort of ponzi schemes you can create when you have unlimited printed fiat and legalized accounting fraud.
This will all be meaningless when BRICS come out with a PM-backed currency and USD crashes. Just mountains of worthless paper.
When The Bernanke said that "the inflation" was transitory - this article is what he was talking about. If he pumps out a ton of money, but it never gets into the hands of consumers, then it can't goose inflation with the horrid uniformity that it needs to in order to make the next Weimar. It also can't spark the Keynesian Wet Dream; thus (purportedly) saving the world. Unless they think that Keynes intended them to make a bunch of money available to banks and corps and then scare the bejesus out of them.
When all this comes unravelled... that will be interesting.
The futures market should be getting easire to predict. There is less and less of it.
People are hoarding cash in the face of near negative returns and FED centralized planning?
Imagine that.
The "cash on the sidelines" hasn't flowed into the casino rigged markets? Someone telegraph helicopter Ben quick! It ain't workin' Benny Boy, it ain't workin'!!!
But look at where they're hoarding it ... people are so dumb
"China refueses to buy"
Finally countries are starting to wise up! Next countries need to refuse the US dollar as the reserve currency. The only way Bubble Bernanke and the Federal reserve stops their reckelessness is when there is a currency crisis and the US dollar dives. It's coming. It will take longer than most people expect.
Great piece.
So as long as the banks don't pick an 'investment' that generades the capital, the game will not end. And add the additional liquidity by the FED from the QEx, these TBTF banks will never likely have a day of reckoning.
And even if there was to be an event, say like a monumental 5% decline in the market, the men and women at 33 Liberty Street will jump into action to save us all from falling into the abyss.
Fair and free markets died in 2008. Not sure what to call this marketplace other than rigged to the upside. The worse the data and reality becomes, the higher the markets go.
It is tragic companies will not commit to capex. It's the lifeline of a company. The consequence of their action will be felt in future years as more competitive companies abroad propel themselves forward as their US counterparts stagnant.
God help us all the day the house of card tumbles.
simulated - the market you are have when you're not having a market
This is a defensive leverage play for the TBTF. Instead of leverage through fractional reserve credit in the mortage market and holding liabilities....they have leveraged through stocks...and moved the leverage to the assets side of the banking balance sheet. Now they cross their fingers and hope the faux confidence calms the market or are prepared for a game of "Last man standing" on a global scale...brilliant really! Let the games begin....
And if serious cuts to defense budgets occurred in an economy so reliant of defense spending (~25% of revenues) then defense sector stocks would plunge. And the TBTF would tank. Thus a serious and protracted war is needed, to ensure 'emergency' US defense spending does not actually fall.
M.A.D.
TBTF are still just putting a gun to everyone's head, as per Sept 2008, nothing has changed except now they need to drag us kicking and screaming into a bigger war, so they can keep the music playing a bit longer.
But even that won't work for more than a couple of years:
http://www.whitehouse.gov/2011-taxreceipt
Total US Tax Revenue as a Percentage of GDP - 1929 to present day
http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?Docid=14
Even Eliminating Defense Spending Completely Would Not Balance the Budget
http://www.heritage.org/federalbudget/defense-spending-entitlement-spend...
Steal several thousand dollars, go to jail for grand theft. Steal trillions, they declare you King!
The powers that be, primarily at the Fed, will do anything to hide the insolvent nature of our financial system. Why hardly matters, but of course to hide the Fed's own fault in allowing accounting to become a completely bastardized system of false excuses.
Debt hasn't died or been extinguished. It's merely been transformed into this kind of crapola. No wonder the commercial paper market is dead. No one in their right minds would invest in a house of cards.
Reading this article, One must understand that this type of education and knowledge can lead to depression and general bad attitude. It is like a moth to the candle, we gotta know.
It is obvious that the usa is bankrupt morally, financially and ethically. The dollar is inherently worthless and will become worthless in reality when some critical event triggers a reaction that begins to feed on itself; it could be anything that sets it in motion. For now, the state and banks keep the dyke from bursting like that Dutch boy with his fingers plugging the holes. But, if you are honest, you know it is going to collapse and that life in the usa will become a hell hole in places where anything can happen. Abroad, other tyrants like Russia, China, muslim world will take advantage to spring into action to grown their own empires and fiefdoms. Hold dollars at your own risk, hold assets or live in the usa at your own risk, invest in usa stocks and bonds at your own risk. And think carefully about what will happen in the country where you do live when the usa cannot fund its reach abroad anymore. There will be tremendous opportunities for those who have deeply considered how the dominos may fall, and where. But for many their assumptions that gold and bullets will save them may prove to be a bigger disaster than those who have refused to prepare at all for the changes that will come, or worse that they are coming at all. Throughout history, real wealth has always come to people either directly or indirectly from land and natural resources, or crime (government). This is the key point to remember when making your personal plans.
as this continues to unravel, the more I completely disagree with ZH that the Fed has planned this. no way anyone up there is smart enough to pull the strings to allow the TBTF banks to eseentially prop up the market...they just aren't that smart...no one is...BUT now that it is happening..i do completely agree it is a pleasurable outcome to them. And worse yet, now that this shiny new toy is apparent, I do think they will jump on it to ensure it continues.
The the economy is propped up with annual deficit spending over $1T/year and now you can also factor in this $2T of invested-sideline-cash.
Spanish house price decline accelerates to 15.2% year-on-year
The last time I reported on the Spanish housing market in August, we were in the midst of a bank deposit run caused...
14 December 2012 at 11:37
Render unto caesar...
This shit makes absolutely zero sense to me. Repos, FAS 140, Shadow banking.
The last time I was so confused was when they started talking about the whole Credit Default Swaps nonsense.
Sorry, but this entire bit of 'analysis' is completely wrong, as in incorrect. The following is dishonest:
@ZH sez:
Which 'bank'? The Fed wouldn't add $2 trillion in currency to its own account. The Fed is bailing out the banks not the Fed itself! Good grief!
Not only, the Fed cannot create circulating money, only the public can ... by circulating it! According to your own article the public is NOT circulating money, neither are the banks and that is the big problem that the Fed is trying to address.
John Hussman says it best, describing Bernanke as a quack doctor trying to cure a broken leg by feeding the patient handfuls of aspirin. Bernanke isn't feeding himself handfuls of aspirin.
The Fedleral Reserve (and other central banks) can only offer reserves by shifting numbers on a computer from one account at the central bank to another account at the same central bank. The reserves are ledger loans made against commercial banks assets as collateral. There is no new money created and cannot be: central banks cannot lend in excess of collateral, they cannot leverage their collateral, they cannot offer unsecured loans and still remain central banks. If central banks leverage themselves they are instantly insolvent: they are reserve banks and have no capital.
The fact that there are bank runs in Europe right now is because the central bank- ECB cannot guarantee system deposits, it is perceived by bank depositors to be making unsecured loans.
Deposits are circulating money. Reserves are a bookkeeping artifact, not funds. Deposits are unsecured loans made by bank customers to commercial banks. Ordinarily a small percentage of these funds are lodged in reserve accounts @ central bank in the event of a demand for them: during periods of credit expansion these reserves are lent, that is ... there are effectively zero reserves during periods of 'growth'.
The creation of excess reserves is a scam to distract the public and Zero Hedge. It is not a transfer of real funds. the only way excess reserves enter into circulation is if there is a call for them ... a bank run. In which case there is a shrinking commercial bank balance sheet to offset any amount of reserves entering circulation.
In a debt money system there are no free lunches, everything is a liability, everything ... except for government (Treasury) demand notes. The last demand notes were issued in the US in 1960s.
C'mon, get with it.
Think of it as Fed + Primary Dealers are just one entity and everything becomes clear. Reserves can be used at any time by primary dealers to by stocks and crude oil or short gold.
The analysis is showing that the TPTF banks or the Loands/Deposits ratio is very healthy for the banks, which means that the banks have said to the average Joe to go and fuckhim self since they wont be generating money on zero interest rates.
The same goes for JPM, but Tyler you are looking at the balance sheet from a borrower perspective which shows that the bank is not willing to lend out approx 0.5T , but for JPM it's fucking healthy, and they dont give a fuck! they will not give out that money anytime soon under ZIRP instead we are going to reverse repo the money to otehr Financial Institutions on higher interest rates.
The most distrubing to see is the Deposits to REPO gap ratio, and for JPM that shit stands at 98.27% (965/982) , but not to worry, under teh reverse repo agreements if the interest rates goes up you pay a collateral on your REPOS were you earn interest on the Fed's Funds rate, and if you are a Reverse REPOer you will still collect a collateral on the holdings (bonds) which you can take and deposit with other banks.
You can RE-RE-hypothicate, but am sure that they do the above as there is no need for them to rehypo.
Eitehr way, those fuckers win, and their muppets lose.
I felt like an idiot for not becoming a dentist after I got my latest dental bill. How can I get into the banking business?
Since 1913 finance is GLOBAL POLITICS.
It has been proven numerous times that significant deflations and expansions were engineered by the banking community for political ends through the availability of credit. See http://www.guidopreparata.com/.*)
The contraction of credit in the US and the EU is a deliberate POLITICAL choice:
the prize is a centralized euro-soviet state that abolishes any chance of political independence and creates an anti-cultural melting pot.
JPM's balance sheet is a rather trivial symptom of this strategy but not an astonishing discovery.
*) the post 1929 deflation was an instrument for geopolitical change and not an internal American accident
nice link, yours? shame that there isn't more discussion around Veblen. here's what he wrote in 1992:
“The current situation in America is by way of being something of a psychiatrical clinic. In order to come to an understanding of this situation there is doubtless much else to be taken into account, but the case of America is after all not fairly to be understood without making due allowance for a certain prevalent unbalance and derangement of mentality, presumably transient but sufficiently grave for the time being. Perhaps the commonest and plainest evidence of this unbalanced mentality is to be seen in a certain fearsome and feverish credulity with which a large proportion of the Americans are affected.”
some things never change
With all these deposits, there is no way interest rates will go up as far as the eye can see. Otherwise the banks will collapse because of the interest burden.
what really happens under the hood
The key to profitable banking isn't to win within the system. It's to design the system so that you can manipulate and violate it to win.
Interesting that just as the massive fraud being perpetrated by the Gubmint (the cancer) upon the citizenry (the cancer victim, aka host) is coming to light, the cancer is endeavoring to take from the host the primary tool the host has to fight the cancer - guns (chemo).
You shall not resist.
And once you've been disarmed, getting the gold (radiation) will be candy from a baby.
You will conform.
Wile E. Coyote...
Fiscal cliff stock & commodity bears dominate further today.
Importantly, the Wile E. Coyote scenario awaits – no matter what eventuates with the fiscal cliff.
http://trader618.com
http://tinyurl.com/ZH-Forum
steve from virginia
Professional economists have no excuse for misinterpreting the savings investment process. They are paid to understand & interpret what is happening in the whole economy at any one time. For the commercial banking system, this requires constructing a balance sheet for the System, an income & expense statement for the System, & a simultaneous analysis of the flow of funds in the entire economy.
The expansion of bank credit & new money-TRs (transaction deposits) by the CBs can be demonstrated by examining the differences in the consolidated condition statements for the banks & the monetary system at two points in time.
Increases in CB loans & investments/earning assets/bank credit, are approximately the same as increases in transaction accounts (TRs) & time deposits/savings deposits (TDs)/bank liabilities/bank credit proxy (excluding IBDDs).
That the net absolute increase in these two figures is so nearly identical is no happenstance, for TRs largely come into being through the credit creating process, & TDs owe their origin almost exclusively to TRs - either directly through transfer from TRs or indirectly via the currency route.
There are many factors, which can, & do, alter the volume of bank deposits, including: (1) changes in currency held by the non-bank public, (2) in bank capital accounts, (3) in reverse repurchase agreements, (4) in the volume of Treasury currency issued & outstanding, & (5) in Reserve Bank credit. Although these principle items are largest in aggregate, they nevertheless have been peripheral in altering the aggregate total of bank deposits.
For the Monetary System:
Thus the vast expansion of deposits occurred despite:
(1) an increase in the non-bank public’s holdings of currency $801.2b
(2) an increase in other liabilities & bank capital $39b
(3) an increase in matched-sale purchase agreements $32.2b
(4) an increase in required-clearing balances $6.7b
(5) the diminution of our monetary gold & silver stocks; etc.(-)$6.6
(6) an increase in the Treasury’s general fund account $4.9b
Factors offset by:
(1) the expansion of Reserve Bank credit $847.5b
(2) the issuance of Treasury currency; $35.9b
These “outside” factors made a negligible contribution in bank deposit growth the last 67 years of $4.4b (deposits declined by $877.4b & were offset by the expansion of $883.4b).
For the incredulous reader I make this assignment: Please explain how the volume of TRs & TDs could grow since 1939 from $48 billion, to $ 8,490 (NSA) billion, even while the banks were paying out to the non-bank public a net amount of (-)$801.2 billion (NSA) in currency.
Federal Reserve Bank credit since 1939 (2.6b), has expanded by billion 847.5 (NSA), (-$801.2 of which was required to offset the currency drain from the commercial banks. The difference in the above figures outlined above was sufficient to supply the member banks with $46b of legal reserves.
& it is on the basis of these legal reserves that the banking system has been able to expand its outstanding credit (loans & investments) by over (+) $8,462 trillion (SA) since 1939. (40.7)
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This is the last time I looked at it. Tyler needs to follow its outline.
So if i understand this the banks are shifting from loaning to owning. So the stockprice drop in 2008 was very welcome, funded by the FED at almost zero interest the banks own now equity, instead of loaning to companies with high risk and other inconviences.
The plunge in multiplier is responsible for the necessary increase in idle cash to avoid debt deflation. The money printing does not create inflation (only devaluation of currency through export of capital and forcing monetary base expansion in the recipient countries), but as soon as the expectation that things are ok rise (inflation expectation surging), the lazy exit from money printing does move prices up.
http://gentlemaneconomics.wordpress.com/2013/01/08/the-best-explanation-...