Thank You CTRL-P: Deposits Rise To Record $2.1 Trillion Over Bank Loans

Tyler Durden's picture

It may come as a surprise to some that the total level of commercial bank loans outstanding as of the most recent week, May 22, was "only" $7.303 trillion. We say only because this number is $20 billion less than the total commercial loans outstanding as of the weeks following the Lehman failure, just before the most epic deleveraging episode in recent US history began. It is also just $600 billion higher than the cyclical lows of $6.7 trillion (net of the February 2010 readjustment of the commercial loan terminology). Why do we bring this up? Because as is well-known, loans are the primary commercial bank system asset, and in a normally functioning financial system, loan creation leads to deposit growth (and vice versa: there is a certain element of reflexivity when it comes to money creation).

So does this mean that deposits in the US financial system have been unchanged in the past nearly 5 years? Not at all. As the chart below shows, while commercial loans have flatlined, deposits, which previously used to track loans on a dollar for dollar basis, took off, and are now at $9.4 trillion (as per the latest H.8), or $2.2 trillion more than the $7.2 trillion when commercial banks loan hits a record in October 2008, just after Lehman filed. What's more notable, is that as of the latest week, the excess of deposits over loans just hit an all time record of $2.079 trillion (we exclude the one week outlier from March 27 as this was a seasonal adjustment aberration).

So what gives? Quite literally, the Fed.

Recall that in a fiat system, money is created either by commercial banks (mostly: but only when there is demand for money), or by the Federal Reserve, which creates money out of thin air (in the form of fungible reserves - a Fed liability), while purchasing "high-quality collateral" such as TSY or MBS as the corresponding asset. Indeed, the chart below shows the very close correlation between the deposit over loan excess since the Great Financial Crisis, and the total amount of reserves created, in this case represented by assets purchased by Bernanke.

The problem with the latter is that Fed money creation is a "supply-push" form of liquidity creation, unlike commercial loans which are "demand-pull" which means the Fed "shotgun" injects liquidity and hopes and prays it finds its way to a consumer who, however, has no monetary preference. Hence "trickle down" and why the bulk of the $2.5 trillion in money created by the Fed has ended up in the stock market (and quite levered at that).

It also means that banks, stuck with massive excess deposits on their books (recall "The "Big Three" Banks Are Gambling With $860 Billion In Deposits") have no choice but to use this capital and gamble with risk assets. JPM publicly disclosed as much in the aftermath of the London Whale fiasco.

All of the above is important because there still is confusion about this process four years after QE began.

Only this past week, Steve Keen, an economist whose views we respect, wrote: "So the ‘printing money’ moniker that critics give to QE is misguided: it actually creates no additional money at all (outside of the gain banks will make on the repo deal). For money to really be created, QE would have to go directly to the Deposits of the public in the private banks, and that’s not what QE does." Actually, that's exactly what the evidence above shows QE has done.

The only difference is that in the absence of IRR>0 opportunities for entrepreneurs, and for capital allocators in the broader economy, not to mention a still pervasive distrust of the TBTF banking system, deposit holders (without prejudice for just who it is these deposits belong to) opt to keep their money in the banks in the form of increasingly more unsecured (see Cyprus) zero interest bearing deposits, instead of allocating it to various capital intensive projects. One need to only look at the collapse in CapEx (and the surge in the balance sheet gimmick of stock buybacks) to understand why this is happening from a corporate standpoint.

The irony is that the longer the Fed remains in the market, the greater the differential between loans and deposits will become, as lack of confidence in the system remains. It was none other than Seth Klarman who explained the simplicity of the reflexive popular thinking as follows:

Most people seem to viscerally recognize that the absence of an immediate crisis does not mean we will not eventually face one. They are wary of believing promises by those who failed to predict previous crises in housing and in highly leveraged financial institutions.


They regard with skepticism those who don't accept that we have a debt problem, or insist that inflation will remain under control. (Indeed, they know inflation is not well under control, for they know how far the purchasing power of a dollar has dropped when they go to the supermarket or service station.)


When an economist tells them that growing the nation's debt over the past 12 years from $6 trillion to $16 trillion is not a problem, and that doubling it again will still not be a problem, this simply does not compute. They know the trajectory we are on.


And when you tell the populace that we can all enjoy a free lunch of extremely low interest rates, massive Fed purchases of mounting treasury issuance, trillions of dollars of expansion in the Fed's balance sheet, and huge deficits far into the future, they are highly skeptical not because they know precisely what will happen but because they are sure that no one else--even, or perhaps especially, the  policymakers—does either.

Indeed, the greater fool is long dead. And as long as the Fed remains actively involved, so will excess deposits - created indirectly by the Fed but parked at commercial banks - stay at these same banks, who see no need to create loans as they are already flooded with trillions of excess deposits which in a post-Volcker and post-London Whale world, they have increasingly fewer options to allocate.

It is only after the Fed exits, that these excess deposits have a chance of entering the economy and resulting in the much needed gradual inflation. Ironically, the longer the Fed remains, the greater the capital allocation preference will be by commercial banks to inject the fungible capital created from excess deposits into stocks.

Speaking of, has anyone seen the "inflation" in the S&P500 in the past several years?

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prains's picture

and round and round we go.......yawn

narnia's picture

this analysis is like defining the results of a petri dish experiment at a lab next to Chernobyl.  it's not what is on the FDIC's NGO GAAP balance sheets that are important. it's promises and guarantees made that aren't.

espirit's picture

Meh, all 0's and 1's.

Matrix Metrics.

Bay of Pigs's picture

This is not inflationary, right?

HAHAHA...sorry all I can do is laugh at this bullshit. 

SamAdams's picture

Not as long as it remains as deposits. Whose deposits is key. If this makes it into mainstream cash flow, then look out.

Bay of Pigs's picture

Sorry, I don't buy the argument. Inflation is raging around the world. At least 8-10% in the US.

Stoploss's picture

WHERE IS THE CHART SHOWING INTEREST EARNED??????????????????????????????



LawsofPhysics's picture

So banks are not banks anymore < shocker >.  Nothing changes until the power returns to the savers and banker actually have to work for a living again.  In the meantime, the captial and resource mis-allocation and mal-investment continues.

Bearwagon's picture

If a man is planning to do some evil, it doesn't benefit him, if he is sort of lucky. Imagine someone who wants to break into your home. You are not at home, but left the door open. The burglar can simply enter the house without breaking any window. He robs everything. Mission accomplished. Some time later the burglar gets arrested for breaking into a bank, because he felt encouraged by his success at your home, and is sentenced to several years of jail. He'd have been much better off, if your door would have been locked and he had given up on his try.
The burglar finding the door open is in a position similar to the one the US-Congress finds itself in. No further need to worry about deficits. Instead the plundering of the future can proceed. (Future generations left the door open ...)
This has lead several economists to the outright false conclusion, that low deficits are bad news. They believe that lower deficits lower the GDP and the average employment. They believe that the only reason, why the economy is developing in a positive way, is the government, spending money it doesn't have to purchase things it doesn't need.
The US Trust Bank calls that the "great experiment", and claims that it not only was adequate but in fact has helped the economy to "normalize". Well, folks, I'm not a financial expert, but I got a very profound knowledge of experimentation. I'll share one of my deeper insights with you: "Normal" is exactly that what you get if you do not experimentalize in any way. "Normal" derives from ... well ... you know ... normal things. If a "normal" result is desired, one would have to take care that nothing extraordinary happens, right?
So how can anyone with at least half a functioning brain think of a "great experiment" as something "normal". Clear case of split cognition, isn't it? And that straight through the middle!
I would suggest to think of the economy as maybe not being quite as normal. What shall be normal about an economy in which the great financial institutions can borrow money for negative real rates? What's normal about an economy in which incompetent entrepreneurs managed their enterprises in such a risky way that they had to be rescued by the government ... and are now rewarded with cheaper loans than any decent entrepreneur can get? Is there anything normal in an economy where the government still spends $1.60 for every dollar it gets from taxes  ... and makes up most of the difference by printing?
That's no "normal" economy at all! It is crazy, it is grotesque, this "economy" has wires attached to its brain and is on a drip. The "great experiment" has just lead us into a fully experimental economy - as anyone who is familiar with experiments would have anticipated.
The word "normal" ultimately describes what happens to an economy, no matter how hard FED and government try to avoid exactly that. "Normal", that is where we will all be in the end, shortly after the "great experiment" has failed miserably ... and one would have realized that Bernanke has created a monster ... not a "normal" economy.

Dr. Engali's picture

All that "money" just sitting there in a digital vault doing nothing. Why it sounds completly barbaric.

bnbdnb's picture

Recent college and high school grads can't wait to buy at the highs.

tickhound's picture

They need to get in now...

As Ben told the latest crop of Princeton younglings... "When I'm gone, the last of the dodo will you be."

akarc's picture

""For example, the use of fertilizer improves crop production on farms and in gardens; but at some point, adding more and more fertilizer improves the yield less per unit of fertilizer, and excessive quantities can even reduce the yield"

espirit's picture

In which case the ammonium nitrate can then be utilized to destroy the competition and monopolies will control the price of diminished yield.

Check wiki for law of the jungle.

Kayman's picture

Economies of scale always bump in to Diminishing returns. No exceptions.



StychoKiller's picture

Return = Amt_Invested * (1 - e-t)

piceridu's picture

Thanks ZH, excellent post.

Dewey Cheatum Howe's picture

It is quite simple actually to stop this mess and put the FED in a real pickle, everyone pull as much as they can out of TBTF banks like JPM including your house loans, savings, checkings, business accounts, investments etc. Just pick one TBTF and hit it all as relentless onslaught, then short the living shit out of it. Park everything you can outside the FDIC system into local credit unions and such. Force the FED to either kill the economy or kill the TBTF bank(s) by continuing or ending QE. Pull all your investments out of the stock market also if you can. Won't happen since the problem in general is more people have invest in things the more they are willing to paper over problems and be biased that shit can keep going with the unspoken driving fear is they might have to lose something really driving them to keep dysfunctionality going by enabling it and in turn creating even worse dysfunctionality. The vicious feedback loop will continue until the system collapses or enough people refuse to participate that it collapses or is forced to reform as a matter of survival.

SheepDog-One's picture

Yep, that's what I was saying people should do years ago, however people are mostly all sheeple so they're easily placated and re-robbed over and over again. Oh well.

Dewey Cheatum Howe's picture

Hammer them from every angle and be relentless about it. It will force them into collapse one way or the other and at the same time as the defaults start on the fractional reserve the credibility will erode at the same time. That is were the reform as a matter of personal survival and reform based on WHAT PEOPLE ACTUALLY WANT TO RESTORE CONFIDENCE comes in. It is time to force the FED to make a choice Main Street or Wall Street no more pussy footing or whining. Shit or get off the pot. They decide Wall Street is more important than the people who ARE THE COUNTRY over Wall Street which is only a subset of the overall people then that is it. Time to burn shit, targeted assassinations, rioting, throwing monkey wrenches in the works, mass protests, refusal to use the dollar for transactions. Whatever needs to be done but put all options on the table. A painful correction that brings things back into line with solid fundamentals will be tolerated and supported even if it does cause social unrest during the correction if they don't well get to work millenials and give em hell since your fucked if they don't and fucked in the short term either way.

The won't go quietly without a fight though. When that happens you get shit like this through their propaganda mouthpieces.

This article is a bit off topic but it illustrates the point.

Just look at this hit piece concerning the IRS and Tea Party types in general and how it tries to do the same to restore confidence by eroding credibility. Typical Fabian Socialist inverted logic to push statist agendas.

I'll quote the key conclusions people can read the rest for context.

"In that way, Swami says, the Internet and other media have helped perpetuate paranoia. Not only does more exposure to these alternative narratives help engender belief in conspiracies, he says, but the Internet’s tendency toward tribalism helps reinforce misguided beliefs."

Exposure to alternate ideas is bad according to them. Obviously people can't use their own brains to determine what is what though unfortunately that seems to be the case with a lot of people but that is not a problem of alternate information but the education system not teaching people how to think and question things but I digress.

Psychologists aren’t sure whether powerlessness causes conspiracy theories or vice versa. Either way, the current scientific thinking suggests these beliefs are nothing more than an extreme form of cynicism, a turning away from politics and traditional media — which only perpetuates the problem.

This is just so disingenious since the spend the whole article making a case that powerlessness does cause conspiracy theories and the reason why they are turning away is the exact fucking opposite because they are the fucking problem same with the TBTF banks and the FED itself. The people who keep enabling them are also the problem.


kchrisc's picture

Yup, "powerlessness" was up on the grassy-knoll, in the Gulf of Tonkin, and at Sandy Hook.

SheepDog-One's picture

Wait, wasn't only $800 billion to $1.2 trillion actual dollars in  existence as recently as 2009?

Yea this should end well I'm sure.

Bay of Pigs's picture

And where did the FED's $11T go in 2008/9, not $700B?

The Bernank said he "didn't know".

espirit's picture

I thought that was the O'bama line?

JR's picture

Economics is more than inflation versus deflation; it involves the economic lives of people and Bernanke’s legacy for this is the transfer of wealth and opportunity from the majority of Americans to the connected and privileged insiders, who benefit from the plunder of Fed policy.

Years from now, it will be Bernanke who presided over the creation of billionaires and the destruction of America’s middle class income and, perhaps, was the catalyst for this once great nation to break its bonds of financial tyranny and abolish the Fed.

For, yes, “Indeed, the greater fool is long dead.”

"Statistics published in Forbes magazine's annual survey of America's billionaires expose this little known but shocking reality. In 1982 there were 13 billionaires; in 1983 … 15; in 1984 … 12; in 1985 … 13; in 1986 … 26; in 1987 … 49. Note carefully that prior to 1986 the number of American billionaires had averaged around 13.” – “Feudalism…alias American Capitalism” (1990)

And by 1990, the Forbes survey reported the staggering total of 99 U.S billionaires! – “Number of Billionaires”

In 2013: “The U.S. is home to 442 billionaires, 17 more than a year ago and 320 more than China, the country with the second most 10-figure fortunes.” – Forbes, Full List of Billionaires of 2013

Today, New York City alone is home to 70 billionaires, the most in the world, according to the New York Daily News. (There are 1,342 billionaires worldwide, according to Forbes’ current list of The World’s Billionaires.)

“More of the uber-rich live in New York City than anywhere else, according to a wealth-tracking report released Thursday (May 9, 2013).

With this conclusion: “Regardless of the reach of the new global elite, New York City remains a favorite draw.”

At the same time, the “Wealth of most Americans is down 55% since the recession, says CBS MoneyWatch, and “the average U.S. household has recovered only 45 percent of the wealth they lost during the recession, according to a report released yesterday from the Federal Reserve Bank of St. Louis.

"Household wealth plunged $16 trillion from the top of the real estate bubble in the third quarter of 2007 to the bottom of the bust in the first quarter of 2009. By the last three months of 2012, American households as a group had regained $14.7 trillion." But notes MoneyWatch:

"The report says almost two-thirds of the increase in aggregate household wealth is due to rising stock prices.

"This has disproportionately benefited the richest households: About 80 percent of stocks are held by the wealthiest 10 percent of the population.

"Much of the total wealth of middle- and lower-income households is based on home values, not stocks. Even though home prices have increased nearly 11 percent in the past year, they remain about 30 percent below their peak."

kchrisc's picture

The economics that we are immersed in and taught, "government economics," is a lie and an excuse for their theft.

Or put another way: If you know that government is a con of thieves and murderers, then anything that emanates from them must be a lie and an attempt to coverup their crimes.

Government is "Goodfellas" writ large.

cynicalskeptic's picture

At one point EVERYBODY in Zimbabwe was a millionaire and most were BILLIONAIRES, and a good number were TRILLIONAIRES  - just before the whole currency system blew up. Now peopel are panning 18 hours a day for a pinch of gold dust to buy enough food  to live on.

It's not the measure of 'wealth' and income it's what that 'wealth' and income can actually buy.


There are more billionaires today - and many of them are far wealthier than their predecessors of decades ago but each dollar they hold buys far less than it used to.  The super wealthy are trying to accumulate as much wealth as possible (trying to stay ahead of this loss of buying power) - oblivious to the fact that their pursuit of more wealth devalues the wealth they already have and destropys the society they live in.  There will never be 'enough' to guarantee you and your family's safety in a dysfunctional collapsed society.

JR's picture

God Bless those billionaires. It brings a tear to the eye, the struggle they have to make just so their dollars will buy more as some other evil person creates inflation.

The truth is, paper currency or a computer entry that replicates money at will without regard to cost is a fraud. In short, it’s counterfeit:

A fiat monetary system allows power and influence to fall into the hands of those who control the creation of new money, and to those who get to use the money or credit early in its circulation. The insidious and eventual cost falls on unidentified victims who are usually oblivious to the cause of the plight. This system of legalized plunder (though not constitutional) allows one group to benefit at the expense of another.”

As Ron Paul explains further: “An actual transfer of wealth goes from the poor and the middle class to those in privileged financial positions.”

Fix It Again Timmy's picture

Why so low?  Ben have a sore finger?

Waterfallsparkles's picture

If the Banks lend Money it would cause Inflation.  Plus, loans are too risky.  It is better for them to play the Market with guaranteed 20% gains in a year due to QE.

Remember QE would stop if there is an indication of inflation.  So, no lending.

scatterbrains's picture

sounds like it's time to start the 3rd and most powerful leg higher in silver..   I'm calling $110+ silver in the next few years

venturen's picture

the leveraged banks should have been allowed to fail! 

orangegeek's picture

Bearer bonds are the next play.  Get the cash out of the bank.


Stacks of cash will be the other option.

espirit's picture

Thank you very much, but I'd rather have PM's in hand.

OneTinSoldier66's picture

Same here. Every time I think about holding onto king dollah cash I find myself going out and getting what it is that I really believe in, Gold and Silver.


It's like the reason Marc Faber gave for putting a picture up of Ben Bernanke in his bathroom. If he has thoughts of selling his Gold and Silver those thoughts go away when he goes to the bathroom.

cynicalskeptic's picture

How about bearer bonds BACKED BY GOLD?

Want to buy some gold backed bonds issued by the government of one of the largest nations on earth? Can get you a deal on Imperial Russian bonds.


NOTHING paper is guaranteed.

And for rthe record.... you can't even use banknotes for toilet paper.... ask people in ZImbabwe.

Downtoolong's picture

Speaking of, has anyone seen the "inflation" in the S&P500 in the past several years?

Exactly. Since everyone is now required to buy stocks if the want to eat after they retire, we should be including stock prices in the CPI along with food prices.

JR's picture


The owners of the Federal Reserve are private bankers. And private bankers buy and sell stocks all the time. So the owners of the Federal Reserve are buying and selling stock all the time. Who says they are using their own money?

An audit might reveal whose money they are using but, of course, no audit is allowed since the Fed not only controls every aspect of the Federal treasury, it controls the Congress of the United States as well.

And if it is audited, is it so stupid as to keep records of its actual movements?

I don’t think people understand what “owners of the Fed” means. It’s theirs, now ours; we can’t own it and we don’t profit from it. They do.

And if you don’t believe me, look at America’s open one-way borders; the coup that tipped U.S. sovereignty into just another piece of world control – into the Keynesian dream of world socialism.

No one except a duped or bought Congress would sign a contract under the Federal Reserve Act provisions - all designed to keep complete power in the hands of the Federal Reserve Bank of New York unless under duress.  IOW, the U.S. Congress looked at this contract which took away all of its constitutional power, and deliberately replaced the U.S. Constitution with the privately owned “U.S.” Federal Reserve System.

Dewey Cheatum Howe's picture

Good point maybe someone needs to post some alternative inflation numbers using the shadow stats numbers factoring in the market also as part of the CPI. Great thought, simple and to the point. Do they even factor savings like 401ks as part of the CPI at all?

Skin666's picture

Again Tyler(s)

Awesome post!

Lmo Mutton's picture

Rehypothacation that shizzit man.

OneTinSoldier66's picture

..."resulting in the much needed gradual inflation."


A Tyler wrote that?


I need some explanation, some elaboration and elucidation on this inflation subject matter.


What is it that makes inflation "much needed"? What is "gradual" inflation, and who determines it?

Quinvarius's picture

No free lunch?  Jamie Dimon eating a 40 course meal for lunch and sticking the Fed with the bill was free for someone.  Maria Bartiromo thinks watching Jamie Dimon eating for free was just as good as getting a free lunch too.

Catullus's picture

I'm going to call it "Keen-sism". It's not Keynesianism, but it's still wrong. To come to his conclusion that QE is not increasing money supply, he throws all of the money created via POMO into what calls a "repo" account with the assumption that the banks can and will be called on to repurchase treasuries and MBS from the Fed. No way. No how.

You've taken an asset (bonds), converted it into cash. Your liabilities (deposits) are not rising as fast as your cash. You are becoming more and more deleveraged. The liability expansion at the Fed IS necessarily inflation. Your assets (bonds) wouldn't have otherwise commanded the price they did because there wouldnt have been enough money chasing them. The Fed had to create the money to monetize your assets (debt). Otherwise you would have had to have written them down even further. Preventing your balance sheet from collapsing WAS the inflation.

Monetizing an accepted collateralizing instrument has a secondary inflation effect by increasing the capacity to lend, which thankfully has not occurred at the same rate as it once did. But I'm looking at enough junk bonds to say that the quality of loans is not improving (even if the quantitatively banks are deleveraging).

This is not the "oh, the only sin here is asset price inflation". That asset price inflation is the droids you're looking for.

JR's picture

And the people all said, Amen.

Quote :

“Inflation is theft of labor by dilution. One should understand that the taxation/enslavement/inflation/property-seizure axis has one common denominator and one goal only: State seizure of labor…

“After centuries of government meddling in coinage and debasement, the stage was set for the introduction of the least understood and greatest scam in the annals of history; governmentally issued paper.

“When governments place their name on money, they are placing their name on the most generic form of private property, on the most commonly exchanged commodity.  This is no different than if government placed its name on all clothing, houses or humans.  The most damaging consequence of this action is that governments have take control of the most exchangeable form of life, which is the most important aspect of money and its relationship to trade.  Money makes the real medium of exchange more convenient.  Based on this fact, government has placed it name on man’s greatest physical instrument of morality.  It not only captured the most liquid form of productive labor, it imposed its name on the atmosphere that surrounds the free and honest dealings among men." – Hugh A. Thomas, STORED LABOR A New Theory of Money

And no one except savers blinked an eye when Gluskin Sheff economist David Rosenberg agreed that the Fed should target and rob savers with ZIRP, i.e., the prime source of sound money and stored value, because by not doing so “the stock market would be hurt.”

Well, didn’t those savers store their labor in Federal Reserve Notes that are issued at the discretion of the Board of Governors of the Federal Reserve System? Well, apparently what the governors issue with their name on it, the governors can take away. And they did.

cynicalskeptic's picture

When there are more DEBTORS than SAVERS you have a perverse situation where inflation is WELCOMED.  (and THAT was the REAL drive behind the 'free silver' movement of the late 1800's)

Those that owe money end up owing LESS.... providing that they can still earn ANY money to pay off their debts.  It's one thing if you're a farmer in 1890 growing crops that can be sold at ever higher market prices while payihg off a mortgage that's fixed.  It's another if you're a salaried worker in an era of high unemployment trying to pay off a mortgage and credit card bills.

Sad reality is that earnings never keep up with the rate of inflation - they lose buying power during inflationary periods so those that think they're benefitting are STILL losing.

forwardho's picture

1. We admitted we were powerless over the Fed, and that it had made our lives unmanagable.

bobbydelgreco's picture

we live now in plutocracy the money made by ben is directed to a narrow elite the portions of the economy that reward our plutocrats will do well while the overall economy will have to suffer when lbj imposed a war on a full employment economy without tax increases before the  plutocracy the result inflation now inflation can come only to what rewards the elite