This Is How $14 Trillion Flows Every Day Through The US Financial System

Tyler Durden's picture

After several weeks ago, the New York Fed was kind enough to tell us that absent perpetual expectations of Fed generosity, the stock market would be over 50% lower, today its intrepid bloggers focus on another critical aspect of the US financial system, and the Fed's mediation thereof: namely visualizing the "plumbing" that keeps the financial system afloat. From the FRBNY: "On a typical day, more than $14 trillion of dollar-denominated payments is routed through the banking system. Critical to a well-functioning economy are the timing and smooth flow of dollars for large-value transactions and the infrastructure that enables that dollar flow. This financial market infrastructure provides essential economic services—“plumbing” for the economy—and is made up of a variety of entities." How does this look on an hourly chart? Thanks to the Fed, now we know.

The actual flow of funds on any given day can be visualized below.

Funds flow and transactions settle throughout the day. Once a transaction is final, the recipient can use the money received to fund a later transaction. Most of the monies that are “recycled” are transferred either through large-value transfers or on the books of a settlement or clearing bank.

 

The hours during which the entities that participated in this study settle payments, as well as the peaks and valleys of those flows, vary considerably—as do these entities’ active settlement hours. Some systems operate virtually twenty-four hours a day, and others for only short windows of time. Real-time or multi-batch flow systems are active for more hours than batch systems that settle transactions once or twice a day. This does not, however, imply that they settle relatively more or less value.

 

The chart [above]  shows consolidated hourly values of U.S. dollar funding flows for the entities that participated in the PRC study. The overall pattern is bimodal, with relative peaks at the beginning and end of primary eastern U.S. business hours. Before 08:00 ET, the aggregate value of payment flows is fairly low and primarily reflects activity in offshore and cross-border systems. As the day progresses, funds values increase: at about 08:00 ET, a number U.S. domestic entities open for business, and domestic payments and settlement of government securities pick up. Aggregate flows flatten out somewhat midday and then increase in the late afternoon as the end of the regular business day approaches. Activity falls off after 18:00 ET as most U.S. markets and systems close, and once again the remaining activity is related to overseas systems.

 

In this chart, the solid blue bars represent funding flows between entities, and the dashed sections show the specialized government securities clearing business within banks. The red lines show cumulative flows over the day.

As for what the basis of the $14 trillion in flows is, simple: the single biggest component is government securities clearing: the heart that keeps the ponzi system beating.

The
table below compares the aggregate values of transactions settled
within the participating FMUs and clearing banks, the cash needed to
effect these settlements, and the supporting amounts of funds that need
to flow to and from each entity. We refer to these as payment
transactions, funding transactions, and funding flows, respectively,
corresponding to the table’s columns from left to right. The following
example illustrates how the respective values would be calculated: A CCP
generally requires participants that owe money to the CCP (a “net
debit” position) to send those monies to the CCP (in a simple example,
$10 billion). After the monies are received, the CCP pays out an equal
amount of value to participants ending the settlement period in a “net
credit” position (also $10 billion). In this example, the payment
transaction amount would be $10 billion, the funding transaction would
be $10 billion, and funding flows would be $20 billion ($10 billion
transferred from the net debit participants to the CCP and the $10
billion transferred from the CCP to the net credit participants).

 

Because
the designs of FMUs differ, the relationships among these three values
vary considerably. Some FMUs offer internal processes specifically
designed to conserve liquidity. Some FMUs (such as Fedwire Funds and
Fedwire Securities) connect other FMUs and banks in real time and with
immediate finality. And other FMUs (for example, retail settlement
systems) use batch settlement processes that debit and credit transfers
of equal value among the bank accounts of payors and payees. Depending
on their designs, FMUs can conserve cash liquidity and provide other
efficiencies by standardizing rules, managing risks, and offsetting
transactions many times their gross settlement values. One approach is
not better than any other; they are just different.

 

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bigdumbnugly's picture

like shit through a goose

Manthong's picture

Bermouli is as important as Schrodinger in this Ponzi..

http://www.youtube.com/watch?v=6lm75J6Cz7o

hidingfromhelis's picture

Rube Goldberg would sure be proud of their PR too.

Buckaroo Banzai's picture

Well, thank heavens for the billions of dollars of drug money that are laundered every day by our TBTF banks. A much needed source of liquidity.

Just imagine. If the drug trade was legalized, all that money going into drugs would instead find its way into the productive economy.

Unfortunately the mentally ill psychopaths that run our world believe there is more profit in the trafficking of human misery than there is in actually producing something positive.

mrktwtch2's picture

keeping on pumping bennie..!!

IndicaTive's picture

When the breeze disappears, someone better get running and pull the kite along.

pbracken's picture

Enjoy the site, ZH, but you've fucked your readers over big time by playing the same bearish fiddle. Markets are nudging year highs despite everything you've waxed on about.

 

pbracken's picture

Minus 4 and counting. What's that about - simply stating a fact. 

LawsofPhysics's picture

Many people, myself include, make money on the ups and downs.  ZH hedge is but one resource I look to.  Always do your own homework.  However, to assume that everyone is losing money all the time or doing everything that a single website says is arrogant and stupid.  That clear things up for you genius?

pbracken's picture

Glad to hear it. 

Still maintain that ZH's mantra has rogered its readership big time. 

BTW, I'm poised to SHORT the indices. 

NidStyles's picture

You're a moronic douche-bag. Does that make sense to you?

i-dog's picture

He's just a desk trading pig trying to generate some "lift" by trolling the Hedge. I think that's unethical. ;-)

I'm just surprised he didn't add "Buy phyzicle" and "I heart Ron Paul" to give himself extra cred....

hannah's picture

pbraken isnt even employed. he is typing from his parents basement. he tells us ZH is too bearish and then he says he is going short...? he cant even be a good troll.

BlandJoe24's picture

Seems to me pbraken is commenting on day-to-day trading/short term usefulness of ZH post's calls, not commenting on validity of ZH's macro views or on overall trading strategies, which are therefore "straw man" arguments in this thread.

As far as day-to-day trading usefulness/accuracy (again, NOT the macro view), over the last several months i have found the Tylers are very often right/useful, AND they have been often wrong, especially on the important issue of timing.  They have often failed to call upward movement and extent and persistence of upward movement in the market.

The Tylers repeatedly pat themselves on the back in their posts when they get things right, referring over and over to how they called things earlier, etc.  They are often remarkably insightful, for which i'm grateful, though "i told you so" gets old.  Especially in light of the fact that.......

I have yet to see the Tylers admit when they get short-term calls wrong, which they have many times over the last few months.  Specifically they call for an impending drop when the market then takes off.  Sure, many people are shocked by the extent of the rally.  And there will be a (many?) big drops sometime.  But when you're wrong on a short term call, you're wrong, and if you're trading on those calls, you lose.  And if you never admit when you're wrong, well, that's weak...

 

Bonus comment:  Some signs of a (in this case intellectual) cult: 

*   The group displays excessively zealous and unquestioning commitment to its leader and (whether he is alive or dead) regards his belief system, ideology, and practices as the Truth, as law.

  *  Questioning, doubt, and dissent are discouraged or mocked and insulted.

  *  The group is elitist, claiming a special, exalted status for itself, its leader(s) and members

 *  The group has a polarized us-versus-them mentality

*   The most loyal members (the “true believers”) feel there can be no life outside the context of the group. They believe there is no other way to be, and often fear reprisals to themselves or others if they leave (or even consider leaving) the group.

 *  leader's mistakes are never openly acknowledged

 *  criticism of leader is rebuffed

 *  adherence to dogma increases in the face of challenging facts 

  *  circular arguments, straw man arguments, defensiveness, or insults are employed instead of open dialogue



 

 

Panafrican Funktron Robot's picture

Just throwing this out there, but most of us here are sitting at our computers eating popcorn, bemoaning our unfortunate boating accidents in which our gold holdings were lost in an undisclosed waterway.  You traders are a trip lol.  When are you going to figure out that there is no right answer in these markets?  Heed Carlin:  It's a big club, and you ain't in it.  Another well worn quote here:  the only way to win is not to play.  I hope (in vain, but I like to be hopeful about things) you heed this and close your IB/TD/OH/etc. account while you still have some confetti left in it.

mayhem_korner's picture

 

 

Apparently, you have never studied basic concepts like "real v. nominal".  Stocks have been in a bear market since '00 when priced in real money.

http://seekingalpha.com/article/380571-dow-13-000-try-that-priced-in-gold

simply stating a fact (with a source)

pbracken's picture

Real v nominal amounts to jack shit when you're a trader. 

mayhem_korner's picture

 

 

Really?  Were you making 10% daily returns trading in Zimbabwe when bread prices were going up 200% an hour? 

You sound like someone whose lunch is taken often.

LawsofPhysics's picture

Precisely why central banks accumulate gold but discourage it's use as a median of exchange.  There is no other chart that displays this so clearly. For me personally, it's a store of value in a sea of broken paper promises.

ebworthen's picture

pbracken

I haven't lost a penny, but enjoy railing against the corrupt machine.

Not everyone is swilling a drink and ogling cleavage at the Wall Street/Washington casino.

 

GMan_'s picture

I wouldn't blame ZH if ever I took and accepted his views and went bearish. Everybody has their own reasons. If you got killed, it's entirely your fault. Sources should be treated accordingly but never place blind trust on them. Otherwise, you're just asking to be massacred.

That being said, as a pro trader and having verified most of the items posted here, ZH is just being real. True that the global economy is on the brink of collapse only to be bid up by Central Bankers' hopes and lies. IF you are able to trade that HOPE then I salute you sir.

pbracken's picture

Not blaming ZH for anything - besides getting it wrong. Even its golden boy Gold has been a dog this year. 

NidStyles's picture

ZH isn't getting it wrong, your grasp on reality and long term trend's is what is wrong. Either way keep pushing your paper, none of us care about you anyways.

DCFusor's picture

Yup, after closing your shorts, probably a good time to buy gold low to sell higher later.  Duh.  Motion is money - just be on the right side of the trade.  It's not rocket surgery. 

ZH is valuable even to mostly-long types, as they are almost always first with any bad news.  Yeah, like MSM (outside of the financials anyway) they concentrate on the bad, not the good.  If you're long, you might value knowing any bad news before ther rest of the world, just saying.  Anyone who gets their trades off a website deserves what they are going to get.  I used to try and post mine real-time so others could follow and benefit - but the lag is just too long if your style requires good execution and timing as mine does, so I quit doing it.

Gandalf6900's picture

If only the market had any sense to it...unfortunately ZH gives us the real deal news, not its fault the market is levitating nonsensically, but I do understand your point regarless of its flawedness

bnbdnb's picture

Lets see, short Greek, Spanish, Italian bonds, buy gold and silver, and short the EURUSD since mid 2011. I'd say you are doing quite well, thank you ZH.

fuu's picture

How does ZH fuck over it's readers?

Is Marla standing behind you guys with the 12" black strap-on making you sell stawks and buy golds?

If so I am totally jealous and hate you all.

mayhem_korner's picture

 

 

LOL!  Icky, but funny...

irie1029's picture

My opinion is not that ZH has it wrong but you are looking at too short of a time frame.  My guess is 2013 Feb / March when the regime change occurs... a huge correction.

Dr. Engali's picture

Just because the Hedge points out the idiocies of these markets doesn't mean that they have fucked over their readers. Every money making idea they have suggested have been profitable for those who took advantage and know how to trade. The Hedge does more to educate their readers than any other site can hope to.

Kina's picture

Enjoy the site, ZH, but you've fucked your readers over big time by playing the same bearish fiddle. Markets are nudging year highs despite everything you've waxed on about.

 

 

CFTC, SEC, Timmah? CIA, FBI? Wall street leach? which one are you??

Law97's picture

It wasn't ZH, I went all in short when GS told me to at 1310.

 

 

Seasmoke's picture

The Wizard of OZ

the 300000000th percent's picture

Its very clear now that what actually happened was in 08' the market indeed did completely crash and the central banks and the powers that be took over and everything is fake now. Total and complete life support. This is why the DHS is rushing to put troops and assets in place all over the country as we speak to try and control the certain civil unrest that is coming. This is also why there has been an increasing pace of the passing of disturbing draconian laws that have been put in place for population control and seisure of land, vehicles, and basically everything you can imagine. This will happen in the next year, good luck to all, god bless you all, and that is all, good night.

vinu02's picture

I wonder when will the ink of printing press will be over.


goo.gl/Fl8c9
LawsofPhysics's picture

Lots of "money" flowing, but only a relative few with the ability to skim.  Atlas continues to shrug, hedge accordingly.

SheepDog-One's picture

Wait till some whale decides to skim everything one of these mornings.

Gandalf6900's picture

When a barrell of crude ink is worth more than one of crude oil...RUN!!!

mayhem_korner's picture

 

 

Never happen.  When the smoke of everything else is pushed aside, the two are correlated near 100%.

adr's picture

SO the cash value of an entire years GDP flows around every single day. Sure, that isn't an epic bubble.

mayhem_korner's picture

the New York Fed was kind enough to tell us that absent perpetual expectations of Fed generosity, the stock market would be over 50% lower,

 

Pretend only works when the theater is a disreality in and of itself.  Perpetual expectations of cures for terminal diseases doesn't provide similar life support to those afflicted.  Eventually the disreality of the economy will cease to be occluded, and the reality of the economic cataclysm will set in.

Madcow's picture

Right - the cappuccino is manily foam.  there's very little coffee in there. There's not going to be "inflation" - only more and more instability as the bankers do everything in their power to arrest and forestall the collapse. Most of the "gold bugs" do not undertand that gold is going up not becuase of fears of "inflation" but because - once assets start blowing up in the collapse, it will still survive with some value because it has no counter party risk - and people are starting to understand what "default" feels like in their guts: CTRL+ALT+DEL.  how can anyone look at this chart and image a future of "inflation" ??

NidStyles's picture

People buy in because of fear of Inflation, which effects the Supply/Demand ratio. The rest of your post is utter nonsense. You are living in Inflation right now, you just can't tell the difference between Inflation and downward pressures from deleveraging. 

eddiebe's picture

Fiscal inflation is obviously already here to the max. So far 'they've been able to keep cost push inflation under wraps with manipulation wherever that is possible. That hardly means it won't happen.

NidStyles's picture

When you think velocity equates to productivity, then you're liable to be fooled into thinking your economy is real.

PaperBear's picture

When all these payments stop flowing there will be waves and waves of bankruptcy as far as the eye can see.