Wednesday, March 25, 2009

Where did all the money go?

People are babbling about all of the "money" that the Federal Reserve is supposedly "printing", but I knew that the Fed was not "printing" lots of currency and that a lot of the "money" was being kept as banking reserves at the Fed. I went ahead and looked for the Fed's "balance sheet" which has a lot of the relevant data.

As far as all of the so-called "printing" of money is concerned, it's mostly a lot of hot air and malarkey. The net change over the past year has been an increase of about $81.5 billion in U.S. currency. That's all. The bulk of the so-called "printed" money is actually just sitting in the Federal Reserve computers as banking "reserves" - about $770 billion of the $1.2 trillion increase in "money" on the Federal Reserve balance sheet. Check out the "balance sheet" for the Federal Reserve - the last column gives you the delta (in millions of dollars) from a year ago:

8. Consolidated Statement of Condition of All Federal Reserve Banks
Millions of dollars
                                                 Eliminations                          Change since
                                                     from       Wednesday        Wednesday        Wednesday
Assets, liabilities, and capital                consolidation Mar 18, 2009     Mar 11, 2009     Mar 19, 2008
 
Assets
Gold certificate account                                           11,037                0                0
Special drawing rights certificate account                          2,200                0                0
Coin                                                                1,827       -        8       +      511
Securities, repurchase agreements, term auction
      credit, and other loans                                   1,363,396       +  147,531       +  531,986
  Securities held outright                                        759,465       +  171,414       +   98,981
    U.S. Treasury securities (1)                                  474,704       +       43       -  185,780      
      Bills (2)                                                    18,423                0       -  133,937
      Notes and bonds, nominal (2)                                412,914                0       -   52,096
      Notes and bonds, inflation-indexed (2)                       39,378                0       +      941
      Inflation compensation (3)                                    3,990       +       43       -      688
    Federal agency debt securities (2)                             48,272       +    3,840       +   48,272
    Mortgage-backed securities (4)                                236,489       +  167,531       +  236,489
  Repurchase agreements (5)                                             0                0       -   62,000   
  Term auction credit                                             468,589       -   24,556       +  388,589
  Other loans                                                     135,342       +      673       +  106,417
Net portfolio holdings of Commercial Paper
  Funding Facility LLC (6)                                        240,713       -      145       +  240,713
Net portfolio holdings of LLCs funded through
  the Money Market Investor Funding Facility (7)                        0                0                0
Net portfolio holdings of Maiden Lane LLC (8)                      26,212       +       34       +   26,212
Net portfolio holdings of Maiden Lane II LLC (9)                   18,439       +       12       +   18,439
Net portfolio holdings of
  Maiden Lane III LLC (10)                                         27,628       +       31       +   27,628
Items in process of collection                         (330)          388       -      216       -    1,098
Bank premises                                                       2,187       +        1       +       46
Central bank liquidity swaps (11)                                 329,012       +   16,551       +  329,012
Other assets (12)                                                  45,582       +    3,844       +    4,424
    
      Total assets                                     (330)    2,068,620       +  167,634       +1,177,873
 
Note: Components may not sum to totals because of rounding.  Footnotes appear at the end of the table.
 

8. Consolidated Statement of Condition of All Federal Reserve Banks (continued)
Millions of dollars
                                                 Eliminations                          Change since
                                                     from       Wednesday        Wednesday        Wednesday
Assets, liabilities, and capital                consolidation Mar 18, 2009     Mar 11, 2009     Mar 19, 2008
                        
Liabilities
Federal Reserve notes, net of F.R. Bank holdings                  862,732       +      467       +   81,531
Reverse repurchase agreements (13)                                 65,027       -    1,358       +   18,884
Deposits                                                 (0)    1,083,408       +  167,824       +1,067,483      
  Depository institutions                                         780,306       +  147,816       +  770,131
  U.S. Treasury, general account                                  100,379       +   65,948       +   95,015
  U.S. Treasury, supplementary financing account                  199,937       -        8       +  199,937
  Foreign official                                                  2,490       +      697       +    2,391
  Other                                                  (0)          295       -   46,631       +        7
Deferred availability cash items                       (330)        2,933       -      787       -      332
Other liabilities and accrued dividends (14)                        9,405       +      281       +    5,328
 
      Total liabilities                                (330)    2,023,505       +  166,427       +1,172,894
                         
Capital accounts
Capital paid in                                                    22,533       +      173       +    3,005
Surplus                                                            21,140       +      193       +    2,682
Other capital accounts                                              1,443       +      842       -      707
 
      Total capital                                                45,115       +    1,207       +    4,979

See: http://www.federalreserve.gov/releases/h41/Current/

Basically, the Fed is "buying" assets from the banks in exchange for this so-called "printed" cash, and the banks turn around and "deposit" the "cash" at the Federal Reserve, increasing the banks' capital base. The theory is that somewhere down the road the Fed will be able to sell these assets and retire much of that "printed" money.

There is neither a big mystery here nor a great scandal or conspiracy, but there is plenty of room for all manner of pundits to "print" lots of scandal and conspiracy with impunity since few people besides me actually bother to take even a peek at the actual data.

-- Jack Krupansky

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