This page has been archived and commenting is disabled.
As QE3 Ends, Fed Reserves Have Biggest Drop Since Start Of QE
While we understand the Fed's desire to pass the monetization baton seamlessly from the end of QE3 in the US, to the expansion of QE in Japan first, and then the launch of public QE by the ECB, things may not be quite as smooth as desired . Because a quick glance at the latest Fed H.4.1 statement reveals something unexpected: in the past 4 weeks, the level of total reserves with Fed banks (i.e., excess reserves created by QE), have seen their biggest plunge since the launch of QE in March of 2009. As of November 5, the total amount of outstanding reserves tumbled to $2.561 trillion, down a whopping $188 billion in the past 4 week, well below the $2.8 trillion recorded in August, and at a level last seen in February 2014.
Yet when looking at the corresponding cash balances of banks, something which as we have shown in the past is directly driven by the total amount of systemic reserves, there is no comparable drop in total cash, as can be seen on the chart below.
Unexpectedly, the difference between total bank cash balances as reported weekly by the Fed's H.8 statement, and the total amount of excess reserves has blown out the most observed under the Fed's central planning regime starting in 2009.
Digging into the components reveals what most should expect: the cash balances of foreign banks operating in the US suddenly soared to a record high $1.537 trillion even as the cash of large domestic banks operating in the US tumbled to $1.1 trillion, accounting for almost the entire drop in Fed reserves! In fact, the total cash parked at foreign banks is greater than that located at domestic (large and small) banks by $100 billion, clost to the highest ever.
So what does this mean? There are several possible explanations:
- the drop in reserves could be simply a calendarization effect, as the Fed is unclear how to seasonally adjust total actual reserves at a time when QE3 has just ended and the Fed's balance sheet is flat.
- there has indeed been a drop in reserves, as domestic banks proceed to finally do what the Fed has been begging them to do for 5 years: lend the cash out. Then again, since there has been a matched collapse in total bank deposits, sliding by over $50 billion in the past week to $10.253 trillion, this is hardly the case if only for now.
- as the reserve drop has moved through the domestic banking sector, foreign banks have seen their domestic cash replenishhed courtesy of offshore QE activity, be it by the BOJ or to a lesser extent, the ECB.
Realistically, what this means is still unclear, and ideally several more weeks have to pass to conclude if the reserve drop is merely just a one time, "calendar", phenomenon. However, if the reserve drop is for real, and outside money is finally being converted into "inside", then last night's warning from Plosser may be quite relevant here:
- FED'S PLOSSER: FALLING BANK RESERVES COULD SPUR INFLATION
And since there are many trillions in reserves to go, the deflation that everyone is so concerned about may be, to use the Fed's favorite word, "quite transitory" and could be just the catalyst that the Fed needs to proceed with rate hikes?
On the other hand, if domestic banks are forced to deplete cash at a time when they still can't force loan creation to accelerate and offset the Fed's money printing, then the next highly levered asset class to be liquidated in order to replenish cash reserves could very well be stocks themselves.
»
- 12872 reads
- Printer-friendly version
- Send to friend
- advertisements -
WTF?
https://www.youtube.com/watch?v=YDR6L9iCwr8
I hear the Fed is using covert QE still by reinvesting the interest on their Trillions in assets back into the market. So it's not really ending.
And if they aren't going to be able to sell any of that shit they bought and are still buying then it's still all just shit that will crash eventually.
there is much confusion about these reserves.
reserves are not "money"
they are, however, an "asset"
historically, banks keep "reserves" as a hedge against what we call "tail risk"
banks keep them, rather than holding, say, diamonds or MBS, out of "tradition"
so the declinie in "reserves" can be understood to signal a general sense that the "tail risk" is diminishing
which permits financial institutions to liquidate their reserve positions and thereby participate more fully in the ongoing recovery
Why is this such a surprise? Now that The Fed is no longer "Officially" buying Treasuries, someone has to (Japan, Russia and China, not surprisingly don't want to) the next line of can-kicking is the TBTF Banks being told to use the reserves acculumalted as a result of Fed largesse (And paying 0.25% for parking someone else's money) to use these reserves to buy Treasuries? Aka payback time...After this is done, especially if Germany will not allow the ECB to play ball (Other than using currency swaps to buy Treasuries through "Belgium", the USS QE4 will be launched.
The banks are doing stealth QE and buying US Treasuries with their excess reserves to stealth taper. What recovery?!?!
From Naomi Prins today...
"Last quarter, US Treasuries were the fastest growing form of security bought by banks, increasing by 26.3% or $72 billion over the prior quarter. As the Fed tapered, banks stepped in to do their part in the coordinated Fed-private bank QE game. In the past year, banks have added $185.8 billion of US Treasuries to their books, more than doubling their share of government debt."
http://www.nomiprins.com/thoughts/2014/11/10/qe-isnt-dying-its-morphing....
Allowing asset prices to fall would be suicide for the big banks at this point. Proping up asset prices by using their trillions in reserves is for there own self preservation.
...and the beat of the music gets a little slower...
Other central banks like BOJ are openly buying stocks, so what's the big secret? I guarantee that if there is another 50% market crash, the Fed will openly but a few trillion worth of stocks to "stabilize" the economy.
Yes, but look who is back at the top of the list again....
LOL!!!
http://www.treasury.gov/ticdata/Publish/mfh.txt
You will take my IOU's and love them as your own!
I just opened my fortune cookie and there was no fortune inside. A sign of things to come....
I don't think they're being lent out, smells of fancy book cookin to me.
You think that's bad. I got one the other day that contained a bill from the cookie manufacturer.
Inflation indeed..........
If excess reserves is converting into loans (that's a 10x) effect to the money supply as in 2.5 trillion is 25 trillion added just to get us back to 0 excess reserves....inflation can easily run away into the dreaded "hyper" world.
November 5th rings a bell. Let's hope we're burning effigies of Mark Carney & Co on the 5th from here on in.
Don't worry about a drop in excess bank reserves - when all of the petrodollars floating around outside the USA come flooding back we will ----
Oh shit never mind.
I don't understand, why you need reserves of something you can print an unlimited quantity of in a moments notice.... Federal Reserve could write itself a 100 Trillion Dollar Blank Check that can't bounce whenever it wants there is no oversight.
why? well, in two words, trade deficit...
Costs money to buy political ad time. Why not borrow it at low low rates?
love this stuff
Inflation or better yet, hyper-inflation it is. That Patek Watch just sold for a record $24 million today. Just goes to show you how much confidence the super-rich have in currency as they would rather own a tangible working watch than $24 million in currency. I guess the watch sold for some "pocket" change or better yet, just some "carrying around cash". Then again, the buyer may be the ultimate sucker as if the markets implode, then the buyer will learn a quick lesson in the "time" value of money. Oh well, at least the buyer will be able to mark the exact time the markets implode with their new found toy.
If he bought a timex I would agree with you, but that Patek Philippe would be considered fine art.
It was a smart move, the rich always buy shit like this before a crisis, they know that it will preserve it's purchasing power (and likely appreciate) over holding the currency itself.
When you see the rich behaving like this in a time of economic turmoil, its not simply conspicuous consumption, it's them battening down for the coming storm.
https://www.youtube.com/watch?v=adBpkOzSA8o
Exactly. They bought an asset with that cash surplus of theirs. An asset that they will be able to unload to other savers in their class should they need to redeem that value.
Gold is the penultiment asset of assets.
"the Fed needs to proceed with rate hikes..."
Comedy gold.
Belgium must be buying again.
An American, not US subject.
...there has indeed been a drop in reserves, as domestic banks proceed to finally do what the Fed has been begging them to do for 5 years: lend the cash out. Then again, since there has been a matched collapse in total bank deposits, sliding by over $50 billion in the past week to $10.253 trillion, this is hardly the case if only for now.
yeah, that one's a little far fetched in this whodunit.
Probably a glitch. Maybe some Fed-owned bonds matured and the Fed hasn't had a chance to reinvest the money yet.
There were smaller glitches like this even when QE3 was in force. And you would only expect a slow gradual decline in Fed holdings (at most) due to the end of QE.
Perhaps the FED can get back to wholesale, large scale property conversion via their purchasing of any and all MBS products regardless of quality or merit. We are living in a time of theft by a system we live in. Ha-ha, as if that were new.
Citie are in on the act of course..
http://www.santafenewmexican.com/news/police-use-department-wish-list-wh...
Fed is extinguishing reserves. Congress has ordered so.
That is obvious.
This is a margin call onthe whole world financial system.
Memo to the writer:
Excess reseves CANNOT be lent out.
Banks do not need centrally created reserves to lend out. They create reserves themselves
Ding Ding Ding!
A new currency waiting in the wings? SDR? Something else!
That is correct. Those who have preserved liquid capital, cash or any kind of liquid purchasing power will have a window of opportunity shortly...
Every essential government bidget is now being directly fed through printing. This is obvious as I don't see a "bullets in heads" yet...
fuckers.
there is 'surrender' under way, hence no bullets.
However, deutchebank guy decided to "suicide" few weeks ago, the FX rigger.
Do note that the Fed has been running the Term Deposit Facility for the past four weeks with fairly sizable take up ($262b last week). Reserves put in TDF lose their reserve status for the term.
http://www.federalreserve.gov/monetarypolicy/tdf.htm
When did the once proud Japanese become such pussies?
If, in fact, the Fed liquified the banks in 2009 by buying toxic and ailing assets of the banks, via repurchase agreements, then the banks have begun repurchasing those much improved assets from the Fed with their profits from the booming stock market.
As the assets are returned to the banks, the bank's cash reserves are returned to the Fed's QE caldron from whence they came.
It was in that way, Watson, the amount of outstanding reserves tumbled $188 billion.
Well and good, Holmes, but how do you explain why there was no comparable drop in cash as you can see on the ZH chart?
Elementary, my dear Watson.
The original buyer in the repo agreements happens to be the same institution that writes the accounting rules for the banks.
In a situation when the banks repurchase their assets, but may not be strong enough to pay back the cash and show the assets on their books, the Fed gives all the banks 180 days to renew their agreement with the Fed.
And during that time, Watson, because the assets can be converted back into cash, the Fed requires the banks to show it as cash on their balance sheets.
Amazing, Holmes! The Fed can do all that?
Oh, Watson, I made all that up.
It has been reported that the Fed is building a 500 billion rainy day fund