I'd like to show you something somewhat Depressing

[we vs us]

The Federal Reserve says that from about Jan 12, American "Depository Institutions" had $-13.68 billion dollars in non-borrowed reserve.  Yes, that's a negative figure.  At this point, they're being loaned money directly from the Fed, even though many banks may have already violated their reserve requirements.

Perhaps you'd like to see a pretty graph for your cliff-diving pleasure:



Shamelessly cribbed from Metafilter, because it seemed like a good story to pass along.

[Conan71]

Come on dude, half of us are already taking some sort of anti-depressant! []

Pretty startling number, I would assume that has to do with the lending stupidity which is/was sub-prime mortgages?

[YoungTulsan]

I'm not sure what this means...  Let me jump into this and try to figure it out on my own

The "non-borrowed reserve" of "Depository Institutions" - Does this mean the actual money that banks have to give out to people when they decide to take money out of the bank?

I have a rough understanding of fractional lending, which means there is only so much actual money that can actually be taken out of banks, versus the total money deposited in banks.  Example, a bank has $10,000 that it can let people withdraw, but lets 15 people have bank accounts with balances of $10,000 each.  It doesn't actually have $150,000 to let people take out, but this isnt usually a problem since the behavhiour of the masses generally sticks to certain mathematical formulas - The 15 bank customers would usually never have more than $10,000 taken out at one time without more being deposited from elsewhere.

So this means that the banks actually ran out of money for people to withdraw, so at this point the Federal Reserve has to directly print new money and loan it to the banks AS people take it out?

This means people are taking more money out of the bank than they are putting in.  This means the banks didn't actually keep the money you deposited, but did something else with it on the faith that people would only take X amount out, but would also be depositing Y amount.  And that X would always remain less than Y.

I have a pretty jaded view of the Federal Reserve, but ignoring HOW WE GOT HERE, I suppose the Fed actually serves a good purpose once the situation hits.  Without the fed being able to print more money, the banks would simply run out of cash and a huge panic would erupt.


Question:  What was the huge spike in 2001?  I really can't imagine September 11th making people put all of their cash IN the bank.  Was that the Bush tax rebates of 2001?  If that was what the rebates did in 2001, perhaps that is the plan with the rebates this time as well, to bail out the reserve deficiency by hoping $15 billion of that $150 billion goes back into peoples' bank accounts.  So the $150 billion would partly be a bailout for the banks with tax dollars, so the banks don't have to pay interest to the fed.  Instead, all US citizens pay interest to the fed (since the government has to borrow it, as well) AND pay to fix the problem that banks created by violating reserve requirements.  And of course we're paying THE FED to FIX the PROBLEM that was CREATED by...  THE FED...  pancakes?

Woops, our artificially low interest rates created a bubble.  Now you need to borrow a bunch of money from us to bail out the banks, and pay us interest on it.  Oh btw, we just create the money by devalueing yours, but you don't really have any choice do you?  Pay up.

[waterboy]

I would say the banks acted in anticipation of a rebate that would cause an influx of funds, but the rebates wouldn't arrive till May at best. I remember that recently Swiss banks announced they would not be opening any new accounts with American dollars. Seems there is a huge demand from wealthy American's hoping to protect their wealth from the anticipated failure of US banks. This was of concern to the Swiss. They not only don't want to do business with the fairweather investors, they don't have any confidence in the value of the dollar either. They snidely remarked that they also refused depositors from Venezuela and Nigeria. So much for patriotism and confidence in the economy!

[cannon_fodder]

I've written and deleted three times an adequate explanation of what the Reserves mean.  I give up, read a few of these articles:
http://wfhummel.cnchost.com/index.html#2

and you will too.  Haven given up on an adequate explanation, let me try a basic one.  I'm no expert, but here is my try.  PLEASE correct me if I'm off on portions.

A bank is required to keep approx. 10% of it's capital (NOT assets) in reserve.  Capital really doesn't mean capital, it means "amount we determine by a messed up formula."  They have to be able to cover a % of their deposits (which may be withdrawn) as well as back their loans (which may go bad, so they are weighted by risk: 1% for most .5% for mortgages).  So they need to have money in reserve to insure they can cover withdraws and anything that goes bad - it adds a margin of safety.

Reserve means in cash or with the Federal Reserve ($ in a vault or $ with the fed).  The bank can raise reserves by getting new deposits, selling assets, or borrowing from either other banks or the fed (at fed funds rate).  

If they add money to the bank (mortgage proceeds, deposits, sale of assets, reduced liability) the Non-Borrowed Reserves rate goes up and the banks are more likely to borrow from each other (as they don't otherwise collect anything on reserves).  If they are not getting new deposits, their liabilities increase, or loans go bad they need to increase their reserves (suffice to say bad loans messes up the capital formula and results in needing more reserves).

SO... if many banks are seeing a slow down in deposits OR are having bad loans and withdraws so they all need to increase reserves.  All needing to increase reserves they are unable to borrow from each other so they will borrow from the Fed.  Given a low funds rate and a slow sale of assets (T notes low, mortgage values depressed) there is little to discourage the borrowing.   THUS, we have a current imbalance as banks try to make their require reserve ratios by borrowing money from the fed.
- - -

Try #4 and it's still a turd.  I won't even bother pondering the meaning or implications of the imbalance, my brain hurts.

[YoungTulsan]

I think you described it pretty thoroughly, well done.

So I'm still wondering if the sharp plunge is from how bad things have gotten in the mortgage meltdown, or if waterboy is correct to assume the banks already factored in the rebates and declared a free-for-all on that projected flood of deposits.  The former would mean the tax rebates are a bailout of the banks.   The latter would be grossly irresponsible for the banks, as the senate has not even passed the final legislature for the rebates.  The banks would in essence be saying "Well, we already spent the money, so you guys have no choice but to pass the legislature now".

[Conan71]

Here's what I know of economics for certain, convoluted formula's aside:

"A fool and his money are soon parted."

[8D]

[RecycleMichael]

Money is the route to all evil. Send me $9.95 for more information.

[FOTD]

All of our econimic statistics are skewed, or "republicanized."

[cannon_fodder]

quote:Originally posted by FOTD

All of our econimic statistics are skewed, or "republicanized."

I thought we established, in great detail, that you have no economic knowledge what-so-ever, and thus - like most of your claims, no basis for this statement.

[FOTD]

CF...I'll tell you again, don't believe everything you see and hear coming from this executive branch. I have fore warned all here before. Mr. Market's correction bears witness to my "claims" that the current regime will do almost everything to hide the truth. After all their prior deceit, how can you peep from your "little world" saying there is no basis for my statement?

[cannon_fodder]

Again, show me a basis?

You are indicating that the entire world financial markets are a shame because Bush is in the White House.  I have never heard an accusation against the Labor Department, the Federal Reserve, the US Bureau of Economic Analysis, the Census Bureau's Economic Program nor any other economic agency.  The markets trust those numbers will real money.

What information do you have that people trading TRILLIONS of dollars do not?  Oh great one, honor me with some data.

OR... admit yet again that you have no basis for your claim.

[FOTD]

quote:Originally posted by cannon_fodder

Again, show me a basis?

You are indicating that the entire world financial markets are a shame because Bush is in the White House.  I have never heard an accusation against the Labor Department, the Federal Reserve, the US Bureau of Economic Analysis, the Census Bureau's Economic Program nor any other economic agency.  The markets trust those numbers will real money.

What information do you have that people trading TRILLIONS of dollars do not?  Oh great one, honor me with some data.

OR... admit yet again that you have no basis for your claim.

Once again, HUH? "Entire world financial markets are a shame"....that's never been said by me. And "The markets trust those numbers will real money" makes no sense. The markets don't trust Bushco but do trust the free enterprise system.

There is plenty of basis to say the executive branch of this country lies and, what's further, has thrown the country into a no confidence mode. Here, lots of lies from as late as Mondaze newz: http://thinkprogress.org/?tag=State+of+the+Union

Waking up yet?

[Conan71]

quote:Originally posted by FOTD

CF...I'll tell you again, don't believe everything you see and hear coming from this executive branch. I have fore warned all here before. Mr. Market's correction bears witness to my "claims" that the current regime will do almost everything to hide the truth. After all their prior deceit, how can you peep from your "little world" saying there is no basis for my statement?

Sheesh dude, name one presidential administration which hasn't lied to the American public or the rest of the world.  There's good precedent, especially in time of war.

[FOTD]

quote:Originally posted by Conan71

quote:Originally posted by FOTD

CF...I'll tell you again, don't believe everything you see and hear coming from this executive branch. I have fore warned all here before. Mr. Market's correction bears witness to my "claims" that the current regime will do almost everything to hide the truth. After all their prior deceit, how can you peep from your "little world" saying there is no basis for my statement?

Sheesh dude, name one presidential administration which hasn't lied to the American public or the rest of the world.  There's good precedent, especially in time of war.

Wow! You've almost convinced me! But there is no precedent for lying us into war.

So, you guys think it's ok that the President of the U.S.A. has no integrity? Neat.