Banks Still Stashing Cash in the Fed's Mattress
Hey Forbes, haven't you been paying attention? It's the end of times, morons, of course banks are keeping cash stashed in the Fed mattress.
Do banks know something the rest of us don't?
Despite pressure from politicians to take federal bailout money and lend it to companies and consumers to kick the economy out of its doldrums, banks continue to horde cash in dizzying amounts.
Weekly data released Thursday by the Federal Reserve show excess reserves held at the Fed--the equivalent of banks stuffing bills into shoe boxes for storage--topped $1 trillion this week, a record, after climbing steadily since the markets froze up last October.
Last year, there was reason enough for banks to horde cash in preparation for the annual closing the books ritual known as "the turn." The credit markets had frozen up, banks weren't lending to one another, and there was deep uncertainty about the state of the financial markets, prompting the federal government's multibillion-dollar intervention with 19 major banks. Banks were unwilling or unable to risk their cash on longer-term assets.
This year, the fear has subsided, but there are still uncertainties. The 19 banks endured stress tests last spring and have raised $150 billion in new capital since then, but regulators continue to talk about whether capital requirements need further adjustment, meaning banks might have to come up with more.
In a speech in Massachusetts Friday, Federal Reserve Chairman Ben Bernanke talked about the idea of banks holding "contingent capital," which is debt that would convert to equity at a time of stress, giving large "systemically" important banks an extra equity cushion to avoid the same fate as Lehman Brothers
The question here is not "why are the banks hiding their money at the Fed" but "why isn't the Fed forcing banks to inject this money into the system like it was supposed to be in the first place?" but no one's asking that as it would be akin to summoning Bloody Mary in a darkened bathroom at a teenage girl sleepover.
Inflation, inflation, inflat-----OH GOD THERE IT IS!!!!! *screeeeeeeeeaaaaaaaam!!!!*
The Fed is totally going to reverse repo itself in the foot and Jr Deputy Accountant is happy to go on record as having said that she is delighted at the idea. She disclaims here that she carries a $0 debt balance and has long since fled from dollar-denominated assets (those of you still hanging onto those financials can suck it) so a pending dollar implosion isn't really all that scary, she'll be sipping cacao on the beach in Nicaragua when all that goes down, good luck with that one, kids.
Allan Meltzer has a perfectly timed WSJ op-ed:
As long ago as the 1960s, then French President Charles de Gaulle complained that the U.S. had the "exorbitant privilege" of financing its budget deficit by issuing more dollars. Massive purchases of dollar debt by foreigners can of course delay the crisis, but today most countries have their own deficits to finance. It is unwise to expect them, mainly China, to continue financing up to half of ours for the next 10 or more years. Our current and projected deficits are too large relative to current and prospective world saving to rely on that outcome.
Worse, banks' idle reserves that are available for lending reached $1 trillion last week. Federal Reserve Chairman Ben Bernanke said repeatedly in the past that excess reserves would run down when banks and other financial companies repaid their heavy short-term borrowing to the Fed. The borrowing has been repaid but idle reserves have increased. Once banks begin to expand loans or finance even more of the massive deficits, money growth will rise rapidly and the dollar will sink to new lows. Do we have to wait for a crisis before we replace promises with effective restraint?
Well, Allan, the answer is simple: Bernanke is a financial crack addict who cannot control his impulses. OR *he* (not the banks, Forbes asshats) knows something *we* don't and has decided to go with the "fuck it" method for Fed exit plans.
Many market participants reassure themselves that inflation won't come by noting the decline in yields on longer-term Treasury bonds and the spread between nominal Treasury yields and index-linked TIPS that protect against inflation. They measure expectations of higher inflation by the difference between these two rates, and imply long-term investors aren't demanding higher interest rates to protect themselves against it. But those traditional inflation-warning indicators are distorted because the Fed lends money at about a zero rate and the banks buy Treasury securities, reducing their yield and thus the size of the inflation premium.
Further, the Fed is buying massive amounts of mortgages to depress and distort the mortgage rate. This way of subsidizing bank profits and increasing their capital bails out these institutions but avoids going to Congress for more money to do so. It follows the Fed's usual practice of protecting big banks instead of the public.
While Chinese government purchases of our debt may delay a dollar and debt crisis, they also delay any effective program to reduce the size of that crisis. It is far better to begin containing the problem before we blow a hole in the dollar and start another downturn.
Oh snap, I think he just told you.
Don't say it. Inflation, inflation, inflaaaaa----- OH FUCK!!!!!!