Courtesy of Lee Adler of the Wall Street Examiner
This is a syndicated repost courtesy of Sober Look. To view original, click here.
Sober Look had an interesting post yesterday pointing out the problems the Fed has been facing lately in achieving money supply growth. I’ve covered this issue at length here so I sent Sober Look a quick note summarizing what I’ve observed. He was gracious enough to immediately share these thoughts, which follow, with his readers:
When the Fed prints reserves by buying MBS and Treasuries with money that did not exist previously, this increases bank deposits (liabilities) and cash assets pretty much dollar for dollar. I have run charts showing this relationship, but something went wrong beginning in January.
SOMA Vs Bank Deposits – Click to enlarge
US Commercial Bank Loans and Deposits – Click to enlarge
ECB and US Treasury Market – Click to enlarge
The Fed is not the only actor in this game. All the major central banks conduct operations with the Fed’s 21 Primary Dealers. US money supply data represents not just the US but is a pretty big slice of the whole world and reflects other central bank policies and the flows of capital between nations and banking systems.
Treasuries were liquidated to pay down the LTRO. At the same time we saw the echo of that in US commercial bank repo lending and other securities lending to nonbanks, extinguishing the offsetting deposits.
Bank Repo And Securities Loans To Nonbanks – Click to enlarge
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