Notable and quotable but is it true? Banks traded their toxics for reserves, and there the reserves sit, unlent to the masses. And while those “reserves” remain reserves, there is no increase in the money supply. But when those banks say, “gimme the green please Mr. Fed,” ah how the general money supply doth increase.

There is a reason that the Fed has asked congress for permission to issue its own bonds, and that is for the fireplace you speak to (methinks).

There is a reason that some economists (e.g. Hamilton) think the Fed should have been buying TIPS and not general bonds for its grand QE experiment (in a panic, the Fed is going to mop up liquidity selling the very thing people are going to flee???, not so with TIPS)

Some of the Feds programs wind down automatically, and so its BS may shrink…but as with Hotel California, so may go this experiment

If inflationary pressures become intense, the FRB can just pull out the extra M1 its been pumping into the financial system.

Obviously, fiscal issues are a concern, since open market operations are ordinarily conducted in U.S. Treasuries. But saying inflation is inevitable is stuff and nonsense. Inflation is exactly what Ben Bernanke says it will be, plus or minus a random error.

When you succeeded Brad I thought we would learn how to get rich (and for the China freaks on this blog, that is glorious) but it looks like you are just a level headed guy. But what kind of opportunities for investors does this create?

Not only does it have implications for the green shoots ‘story’, as you point out, but it also has implications for the dollar ‘story’ many are propagating: there can’t be as many dollars sloshing around the world when broader dollar liquidity is contracting the way it is.

Down the road, the deleveraging story will wind down and the transmission mechanism will normalize, and then we will revert to the dollar overhang story that I wrote about a couple of days ago, which is much less a function a recent monetary policy than it is one of the legacy historical role the dollar plays in the world economy, as we move from a unipolar world in terms of reserve currencies to one where the dollar–while still central–will be far less dominant.

Thanks for this, very interesting

Claus

“This speaks to my point that there is simply not enough liquidity in the economy to generate the green shoots that so many are talking about.”

And how would you fix that, Robbo?

As many have noted above, the Fed balance sheet data is simply taken from the H4 tables, the M2 numbers are from the H6 tables and the base money data is from H3.

Another way of looking at liquidity in the US economy is to measure commercial bank assets against ultimate liquidity (holdings of US treasury and agency securities and cash at the Fed – see the excellent IMF working paper 09/120 on this topic). This measure of ‘liquidity leverage’ sits steadily at 5.8 times which is pretty much the lowest level seen since mid 1995 and peaked in May of last year at over 10. In other words US commercial banks – who are in effect charged with circulating the Fed’s balance sheet into the economy – are hoarding cash in safe assets because they do not want (or are not being asked) to lend it out. This speaks to my point that there is simply not enough liquidity in the economy to generate the green shoots that so many are talking about.

Please reply to my email and I will happily pass on some of the work I have done on liquidity leverage.

Regards, Robert Rennie, Westpac Bank. Sydney

Geithner Plan II
http://www.youtube.com/watch?v=n-arbfLTCtI

nothing changed, it is justified to commit more severe and extreme moral hazard against the good people, privatize profit and socialize loss. and current administration Obama, Geithner, and Bernanke continue to encourage/justify extreme moral hazard, to dupe taxpayer into more TRILLIONS dollars of LOSS.