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US Default Scare Leads To Biggest Weekly Surge In Non-Seasonally Adjusted M2 In History

Tyler Durden's picture




 

About a month ago we penned a post to refute some misconceptions about a material spike in M2, which led such luminaries as Andy Lees and Art Cashin to get confused that this may be an indication that either the government was forcing money into the population with the end of QE2, or that this was actually a confirmation that QE was working. It was neither. As we explained it was a combination of the Treasury general account on the Fed's balance sheet soaring (from a balance sheet standpoint), and due to the repeal of Regulation Q (from an actual flow perspective), that led to the move. Sure enough, in the 3 weeks following, M2 dropped to very much unremarkable weekly change levels. Until the week of August 1, or the week in which the specter of a US bankruptcy came to life, and in which the market took its first notable leg down. In that week, the broadest publicly released monetary aggregated - the M2 - soared to an all time high $9.5 trillion, or a $159 billion weekly change. This make it the third largest weekly spike in history After the Lehman bankruptcy and September 11. Then again, this data includes the traditional seasonal fudge adjustments by the Fed. A look at the non-seasonally adjusted time series indicates that last week's spike in M2, primarily in demand and savings deposits at commercial banks, was the highest on record! Sure enough, the bulk of this cash ended up in America's largest depository institution, Bank of America. And yes, this was in the week prior to the massive market rout. Yet as the charts show, following every massive inflow of money into demand deposits and savings accounts, it goes right back out the next week. Which is why we wonder: is Bank of America, so flush with cash a week ago courtesy of the debt ceiling fiasco, suddenly cashless, as investors follow up with the kneejerk withdrawal of capital from the depositor bank due to worries of bank runs and other less quantifiable reasons? Does this explain why, in addition to the fact that the bank's sale of its China Construction Bank stake is not going well, BAC may soon be forced to enter the capital markets to raise equity capital, just as we have been predicting all along?

First, observe the three highest spikes in seasonally adjusted M2 in history:

The same chart with a focus on more recent data, and broken down by core M2 components:

Although this is the kicker: a chart showing the non-seasonally adjusted weekly change in M2, to eliminate any adjustment noise. The data speaks for itself (and if it doesn't, at $177.5 billion, the weekly spike in NSA M2 is the largest ever).

What are the implications: well for one, we know this week's move had nothing to do with the Treasury's cash balance or with Regulation Q: those have since normalized. What the data does show is that in the week ended August 1, everyone and their dog took their money and put it away in non-interest bearing accounts. Why they would do so is not precisely clear. And that will be revealed next week when the inevitable outflow from M2 reappears. Whether this occurs in real life due to follow on concerns of a bank run in adverse conditions, or simply due to a need to access the deposited cash is unknown. And irrelevant. What it does, however mean, is that in one week, assuming BAC got a sizable chunk of this deposit flow (and let's further assume about $30 billion or 20%, roughly its size in the depositor TBTF pyramid), that Moynihan had absolutely no need to raise capital as early as the last week of July due to the surge in cash coming in via the deposit window.

What, however comes next? As is all too obvious above, every action of a near record surge of capital into deposit and savings accounts is almost universally met with an equal and opposite reaction. This is double true when bank run risk starts to be envisioned, like happened with Bank of America last week.

Which means only one thing: BAC may well have seen a deposit capital outflow of $30 billion in the current week... and then some. Needless to say, $30 billion is not an amount the bank can live without, and should this be confirmed, expect to see the bank trading at a modest fraction of its current price.

We hope to bring you the answer next Thursday, when the latest H.6 is released. In the meantime, is Bank of America's latest logo: "generate a crash to feed us some cash..." And what happens if BAC's stock has still not recovered by the time the crash is over?

Source: Federal Reserve H6 statement

 

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Fri, 08/12/2011 - 00:34 | 1553346 phungus_mungus
phungus_mungus's picture

Boo!

Fri, 08/12/2011 - 00:55 | 1553383 IQ 145
IQ 145's picture

Wow. Now that's some reportage. I had no idea BAC bought into a Chinese Building bank; I wonder what they were smoking. It couldn't happen to nicer folks; they really caused me some problems about thirty years ago; and I hate the MF;s.

Fri, 08/12/2011 - 01:21 | 1553419 macholatte
macholatte's picture

It's a pretty fair guess they did it with TARP money when Lewis was still the boss.

Fri, 08/12/2011 - 03:51 | 1553508 Michael
Michael's picture

"Al-Qaeda gonna getch yah? Odds unlikely."

You can quote me on that. MJN

You can even make bumper stickers out of that saying.

Fri, 08/12/2011 - 06:52 | 1553582 spiral_eyes
Fri, 08/12/2011 - 07:00 | 1553590 tarsubil
tarsubil's picture

Is it me or is Krugman extremely creepy?

Fri, 08/12/2011 - 00:37 | 1553348 baby_BLYTHE
baby_BLYTHE's picture

off topic, but know many will be interested to see highlights of Ron Paul kicking some Neo-Con ass during tonight's Republican primary

Part 1

Part 2 

Fri, 08/12/2011 - 00:54 | 1553381 Waffen
Waffen's picture

wow.. well you watch that and go "Ron Paul, kicked serious ass."   He will continue to be ignored by the media however. :(

Fri, 08/12/2011 - 01:20 | 1553417 JJSF
JJSF's picture

Watching bloomberg all day yesterday in the background while working. The iowa straw poll was covered about every 15 minutes with in depth discussions of romney, Bachmann, Perry...and not one mention of Paul.

Fri, 08/12/2011 - 10:46 | 1554190 Doyle Hargraves
Doyle Hargraves's picture

Liberty...Ron Paul Bitchez!!!

Fri, 08/12/2011 - 00:44 | 1553361 caerus
caerus's picture

really?  nobody thinks the cnbcw ticker's too fast? fukin a it's fast

Fri, 08/12/2011 - 00:45 | 1553364 Reese Bobby
Reese Bobby's picture

Don't worry, modest deposits are FDIC insured!

Who can forget this classic:

http://www.zerohedge.com/article/shelia-bair-addresses-worried-nation

 

Fri, 08/12/2011 - 00:54 | 1553380 AhhhItBurns
AhhhItBurns's picture

Does the FDIC insurance guarantee freshly printed bills if the bank goes belly up? I hate getting ones with wrinkles.

Fri, 08/12/2011 - 01:25 | 1553424 Reese Bobby
Reese Bobby's picture

Sheila Bair can blow freshly minted quarters out of her ample arse, job or no job.

Fri, 08/12/2011 - 00:48 | 1553370 StormShadow
StormShadow's picture

I've been doing my part, drawing down my BAC balance regularly, as in every day last week.

Fri, 08/12/2011 - 00:50 | 1553377 I think I need ...
I think I need to buy a gun's picture

bank of america is a toxic endless shithole.....

now for some interesting facts.....we are sitting on sinclairs 1764 gold brick hes mentioned liftoff after this

also this fofoa guy looks like the king i just heard on bloomberg that the franc and china are going to peg to the euro, if i'm correct  believe fofoa has made it clear the euro is seperate from the nation state.....looks like this will all be reality shortly.

I don't think we are going too much further before the shtf

Fri, 08/12/2011 - 01:19 | 1553378 caerus
caerus's picture

hell i guess i'll go short gold...night!

 

edit: btw wtf is up with soros's girlfriend suing him? he had a girlfriend? they had an apartment? 

he did not beat her with a lamp

Fri, 08/12/2011 - 01:13 | 1553407 chet
chet's picture

Don't understand all this stuff completely, but don't people get paid every other week, and spend it down the next?

Fri, 08/12/2011 - 01:13 | 1553408 choorles
choorles's picture

The monetary revolution has begun! www.silverrevolucion.com

 

 

Fri, 08/12/2011 - 01:28 | 1553427 caerus
caerus's picture

ES in backwardation...it's cool though cuz he did not beat her with a lamp

Fri, 08/12/2011 - 01:46 | 1553443 laomei
laomei's picture

i took out another 10,000 RMB last night from BofA in cash, deposited it into a Chinese account and then transferred it over to my gold-trading account and purchased another 28 grams of gold, took my profit and just got back from a nice lunch with the wife paid for with said profit via debit card.  everything is current and up to date and i even got a nice text message (free) for each step of the transfer along with a current balance.  bank of failmerica is still "processing" the initial withdrawal.

Fri, 08/12/2011 - 01:47 | 1553444 Element
Element's picture

You're forgetting one thing ... obahma personally declared US a triple-AAA State ... always has been, always will be - so there!!

Alan wreckins the printers never fail!

Hopium pipe just needs a little adjustment.

Fri, 08/12/2011 - 01:56 | 1553449 HaveBallsWillJuggle
HaveBallsWillJuggle's picture

I pulled 50k out of my demand deposit at BofA just to f%^k with them.  So I did my part to tip them over.  I hate them with a white hot flame.

Fri, 08/12/2011 - 02:37 | 1553481 Scalaris
Scalaris's picture

Pardon my naive question, but is the increase of monetary base caused by cash deposits into the Fed's Balance Sheet as Reserves, via the Primary Dealers, from the expiration of T-bills held into the Treasury's General Account, thereby causing a surge in M2 or is there no such connection and I've just mixed things up?

Also, does the inflow into non-interest bearing accounts correlates with the unwinding of sweep accounts in any way?

Fri, 08/12/2011 - 03:51 | 1553522 chump666
chump666's picture

ez open dax down ftse up...yeah right, get ready for swing trades from hell

Fri, 08/12/2011 - 03:51 | 1553523 michael.suede
michael.suede's picture

I bank at bank of america and I just went in around 6:00 pm pacific time to get a large cash withdrawl from my account.

They told me their systems were down and that I could only withdrawl 200 bucks.

My ass their system is down, they are out of money.

Fri, 08/12/2011 - 03:59 | 1553528 chump666
chump666's picture

as ZH pointed out.  ban short selling now is prelude to a MAJOR bank crisis

Fri, 08/12/2011 - 04:05 | 1553533 michael.suede
michael.suede's picture

I'd also like to add that I was unable to use my debit card at an ATM, but I did make a successful purchase at a grocery store with it (under 200 dollars).

I have never experienced an outage with my account before, so I have to question the timing of this.

Fri, 08/12/2011 - 07:50 | 1553662 Sandy15
Sandy15's picture

I would keep withdrawing $200 at a time until you get it all.  Especially before all the other BOA customers figure it out.  When that happens you'll be lucky to get $2 out at a time.

Fri, 08/12/2011 - 03:52 | 1553524 chump666
chump666's picture

its on.

Fri, 08/12/2011 - 06:52 | 1553583 Waterfallsparkles
Waterfallsparkles's picture

It would not hurt to have some Fiat Money on hand.  Everyone knows that all of the Money put into circulation was electronic Money.  There is no way they could physically PRINT 2 Trillion Dollars.

If everyone wanted to withdraw their Fiat Money from the Bank, I do not believe there is enough Physical Money to go around as it has not been printed.

Good idea to keep some on hand just in case.

Fri, 08/12/2011 - 07:15 | 1553604 Anaxagoras
Anaxagoras's picture

The surge in non-interest bearing deposits was due to institutions and businesses moving cash into transactional demand deposit accounts which still offer, through Dec. 31, 2012, unlimited FDIC insurance protection. For individuals, still only $250,000, but this is why the surge occurred in conjuction with concern over the debt ceiling debate last week.

Fri, 08/12/2011 - 07:33 | 1553631 Ricky Bobby
Ricky Bobby's picture

BAC bank run would be a sight to behold.

Fri, 08/12/2011 - 08:57 | 1553790 OpenEyes
OpenEyes's picture

BAC is beginning to smell, sound, look like Lehman and AIG more every day.  in fact, 2011 is beginning to sound, smell, look like 2008 more every day too.  I think it won't be long before it'll be Obama's turn to tell his inner circle "this sucker's going down".

Sat, 08/13/2011 - 02:46 | 1556591 yang46
yang46's picture


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