jim49er
11-25-2011, 08:53 PM
For all its obscurity, the Fed's balance sheet is relatively simple: on the right there are the liabilities such as currency in circulation (which is relatively flat at around $1.1 trillion but rising slowly (for now) every week), and excess reserves, at $1.5 trillion, or the money that is "parked" with banks and is the topic of so much consternation: will it ever spill out into the broader economy, won't it, and if not why not, and if yes, will it cause hyperinflation, and other such tangential ruminations. Then on the left we have the assets, or the "stuff" that backs the currency in circulation and excess reserves, such as Treasurys and MBS, which total $2.6 trillion, and which are the primary variable in every Large Scale Asset Purchase episode also known as Quantitative Easing: should the Fed "print", or said otherwise, "purchase" assets, then the excess reserve number goes up first, with a hope that it will slowly spill over into currency in circulation and other broader monetary aggregates. Lastly, there is also the Fed's capital account or "shareholder equity" for purists, but since the Fed can never in theory be undercapitalized by conventional definitions, this is merely a placeholder. Another broad way of looking at the Fed's assets is "factors that supply reserve funds" or "source of cash", and liabilities as "factors that absorb reserve funds" which is, logically, "use of cash." The key assets and liabilities noted above are the major components of the "flow" - they move glacially up and down, and are priced in well in advance of such moves. It is the marginal, or far small number that matter, and that fluctuate materially from week to week, that are not priced in, and are thus market moving. One such curious liability which we pointed out recently is the Fed's reverse repo agreements with foreign banks: in the week following the MF Global bankruptcy these soared to a record $124.5 billion. Basically, foreign banks scrambled to procure a record amount of US Dollars while repoing Treasurys and who knows what else with the Fed, an indication that other conventional liquidity conduits had frozen in the days following the Halloween MF massacre. Since then the Fed's Reverse Repo balance has moderated to more normal levels as Treasurys have gone out of repo with the Fed. Yet something more troubling has just been spotted. In today's one-day delayed issue of the Fed's H.4.1, literally the very last number on the very last subpage in the weekly update reveals something quite disturbing. Namely the Fed's "other" non-reserve based factors absorbing liquidity. And specifically, the actual number, which rose by an unprecedented $88 billion in one week to an all time high of $115 billion for the week ended November 23!
Why is this troubling? Because unlike reserves, this number is effectively not defined, and there is no clear transposition between assets and liabilities, not to mention that "other" could mean virtually anything. So in SOME ways this could simply be a plug to a plug (such as Fed Capital), and reading too much into it may simply be an exercise in futility. On the other hand, what we do know, is that by the generic definition of factors absorbing liquidity, in the past week, a domestic financial institution (because unlike last time around, this was not a foreign-based need for cash) was the willing and ready recipient of an incremental $88 billion in "reserves" - read cold, hard cash.
We wonder: in this day and age of trillions in fungible excess reserves, and discount window stigmata, just what was it that caused US banks to demand a record amount of effectively under the table cash from the Fed?
http://www.zerohedge.com/news/why-did-fed-inject-banks-record-amount-other-cash-past-week
Why is this troubling? Because unlike reserves, this number is effectively not defined, and there is no clear transposition between assets and liabilities, not to mention that "other" could mean virtually anything. So in SOME ways this could simply be a plug to a plug (such as Fed Capital), and reading too much into it may simply be an exercise in futility. On the other hand, what we do know, is that by the generic definition of factors absorbing liquidity, in the past week, a domestic financial institution (because unlike last time around, this was not a foreign-based need for cash) was the willing and ready recipient of an incremental $88 billion in "reserves" - read cold, hard cash.
We wonder: in this day and age of trillions in fungible excess reserves, and discount window stigmata, just what was it that caused US banks to demand a record amount of effectively under the table cash from the Fed?
http://www.zerohedge.com/news/why-did-fed-inject-banks-record-amount-other-cash-past-week