Friday, February 11, 2011
100% of Last Month's Money Printing Went Back to the Fed
According to the Federal Reserve's latest H.3 "Aggregate Reserves of Depository Institutions and the Monetary Base" statistical release, over the four week reserve period of January 12 to February 9, 2011, non-borrowed bank reserves increased by $112.5 billion, from $1.032 trillion to $1.114 trillion. During the same time period, the New York Fed purchased a total of $112 billion in Treasurys from the primary dealers (actually about 5% more, as the purchase amounts are reported at par). Accordingly, the latest round of money printing has been a wash, as non-borrowed reserves on deposit at the Fed are not eligible for lending or use as collateral (though they do earn 0.25% interest).
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Ruh-roh...
ReplyDeleteJames Altucher: "Nothing the Fed could do at this point could make the markets go down." (from recent StockTwits interview)
Wow...couldn't disagree more. Though the move by the banks into reserves is voluntary, the Fed has a pending lawsuit against BAC. All in needs to do is step up the rhetoric (possibly through its lackeys at Pimpco), or tell JPM to hit the reverse lever on its SPY bid algos.
ReplyDeleteNon-borrowed reserves include excess reserves which can be lent out or used as reserves. Some non-borrowed reserves are a part of required reserves (those that are not borrowed from the Fed), which means they are actually being used to create money.
ReplyDeleteIt's true that reserves placed as excess are not in the system, but banks could put then in the system as a New York minute.
RW is correct, there is nothing that forces banks to keep excess reserves with the Fed, and they could enter the system in a NY minute. However, while they are at the Fed, they are out of the system. I've taken this voluntary action, along with the reduced Fed Funds rate, as a sign of risk aversion. There are lots of dynamics in these markets, so it is just one person's opinion.
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