Needs some economic help please.

[cputter]

Don't know if any of you have been following the negative reserves the Fed has had lately.

Check out:
http://www.federalreserve.gov/releases/h3/hist/h3hist4.txt

That shows data from 1975 to present. A quick glance at the two left most columns will show you that for the past few decades the total reserves and non-borrowed reserves have been nearly identical, every week for several decades.

Until last December that is. Scroll down and see money vanish.

It's rather strange indeed. Today I was expecting to find the updated data for the first week in Feb there too, but for some reason it seems we'll have to wait another week for that.

http://www.federalreserve.gov/releases/h3/Current/

They did issues a statement regarding those ominously negative reserves though today:

Recent Declines in Nonborrowed Reserves

The H.3 statistical release indicates that nonborrowed reserves of depository institutions have declined substantially since mid-December to a level that is now negative. This development reflects the provision of a large volume of reserves through the Term Auction Facility (TAF) and has no adverse implications for the availability of reserves to the banking system.

By definition, nonborrowed reserves are equal to total reserves minus borrowed reserves. Borrowed reserves are equal to credit extended through the Federal Reserve's regular discount window programs as well as credit extended through the TAF. To maintain a level of total reserves consistent with the Federal Open Market Committee's target federal funds rate, increases in borrowed reserves must generally be met by a commensurate decrease in nonborrowed reserves, which is accomplished through a reduction in the Federal Reserve's holdings of securities and other assets. The negative level of nonborrowed reserves is an arithmetic result of the fact that TAF borrowings are larger than total reserves.

So here's my question: Any of you know what that actually means? Have they been buying cocaine with the gold in Fort Knox?

Would be nice to have someone cut through the bullshit...

 

[cputter]

b u m p for knowledge...

 

[sgrooms]

im interested as well

 

[Deborah K]

Scarey. Where's all the money?

 

[Deborah K]

Send the question to Peter Schiff : [email protected]

 

[spudea]

banks hold fed securities as assets, which they can exchange with the fed for cash. Basically the banks just dumped all their fed securities for the injection of cash. Now that it is negative, the banks need the fed to print a ton more money.

But don't take my word for it, i'm just a 2nd year finance student. I don't know shit.

 

[cputter]

I did some quick googling and came across:

http://www.federalreserve.gov/monetarypolicy/taf.htm

It seems this "Term Auction Facility" was set up out of necessity in early December because,

In view of the pressures evident in short-term funding markets, the Board of Governors of the Federal Reserve System (the "Board") has approved the establishment of a temporary Term Auction Facility ("TAF") program in which the Federal Reserve will auction term funds to depository institutions.

Or if you cut through the bullshit:

"You're all fucking broke. Here's some cash."


So now, not only are they pumping cash into the economy through there normal evil ways, they've developed new and unique and even more evil ways to debase the currency.

I mean, really, you at least have to give them credit for ingenuity.

The first two auctions in Dec. gave away 20 billion each at about 4.5%. In Jan. two more auctions gave away 30 billion each at 4% and 3% respectively. It seems they're only 28 day loans and I'm assuming they actually need to be payed back, who knows.


So that would explain why their non-borrowed reserves fell. Their borrowed reserves sky rocketed... 40 billion in Dec, which they hopefully got back. And then 60 billion more in Jan.


Can someone please explain to me what exactly is the difference between using this TFA compared to simply borrowing from the Fed like normal?

 

[PepperdotNet]

It means plain and simple, the banks are broke, everything they have is borrowed and then some.

 

[cputter]

so I e-mailed Mr. Schiff. Hopefully he replies and I'll enlighten the rest of you too.

 

[lasenorita]

Feds accused of gold-price manipulation
Alleged objective to 'conceal the mismanagement of the U.S. dollar'

"Anybody Seen Our Gold?" is the title of the ad, which alleges U.S. gold reserves held at depositories such as Fort Knox and West Point may have been seriously depleted. GATA asserts U.S. gold reserves are being shipped overseas to settle complex transactions utilized by the Federal Reserve and the U.S. Treasury to suppress the price of the precious metal.

"The objective of this manipulation is to conceal the mismanagement of the U.S. dollar
so that it might retain its function as the world's reserve currency," the ad copy reads in a pre-publication version GATA provided.

Source: http://www.worldnetdaily.com/news/article.asp?ARTICLE_ID=59876

 

[JordanQ72]

Can someone please explain to me what exactly is the difference between using this TFA compared to simply borrowing from the Fed like normal?

The interest rate.

The FED wants to get banks lending and the rate they normally offer at the discount window, and the rate at which they can borrow from other banks, and other entities, is too high compared to assessed risk. They physically don't want the money at 6%, 5%, or 4% even lately etc.. The next one is probably going to be under 3%. The banks have dropped their risk margins quite sharply lately.

In terms of reserves, that's just an issue in terms. Bank vaults are still filled with physical cash much above the required reserves.

 

[cputter]

The interest rate.

Thanks, that does make sense then. So basicly they're too afraid to cut the core interest rate down to a level where more banks would prefer it (due to inflation, mass panic). But banks still need tonnes of money, so the fed needs to pump cash into the system in some other way or else it'll collapse.

One thing I still don't get, in their statement they said:

total reserves = non-borrowed reserves + borrowed reserves

How I understand this is:

total reserves: this is basicly fixed and needs to be as close as possible to the required reserves (which is predetermined by central economic planning genies)

non-borrowed reserves: assets and stuff (Xerox machines and blank paper? ok I'm not so sure), kinda fixed.

borrowed reserves: the money they've been lending out, variable.


Now bear with me for two seconds, I'm putting on my tin-foil hat.

The total reserves can't differ greatly from the required reserves, which are planned and set at certain values to prevent massive inflation. ie. it prevents them from simply printing money to their evil little heart's content. But, to cover up their own poo-poo they needed truckloads of cash fast. They did this through the TAF (90 billion and counting). But the books need to balance with the required reserves, so they simply put a huge negative on their non-borrowed reserves.

Maybe someone can explain this better? (or at all)

What exactly are the non-borrowed reserves? How can they be negative?

 

[cputter]

bump for knowledge

 

[JordanQ72]

Your definitions are slightly off

Non-Borrowed Reserves = (Total Reserves) - (ANY borrowing from the FED)

Total Reserves = (Deposits at Federal Reserve Bank) + (Vault Cash set aside as reserves)

So, say a bank has $40 billion in cash as reserves. A bank then goes and takes a $40 billion loan from the FED. It would now have $0 in non-borrowed reserves. It's a poor definition of the column and term because people make the assumption that the loan must have been used to cover reserve requirements, but no such determination can be made without looking at other factors. Without a draw down in vault cash, and no significant amount of new currency printed, it wouldn't seem the loans are covering reserve requirements, but instead being reloaned by banks.

Also, only $60 billion has been loaned out. The loans are given on a 28 day basis, which means there's been a repayment by the time the 2nd auction afterwards rolls around.

So far there's been 4 auctions, with 2 more planned.

Amount loaned/Total Outstanding
1) 20b/20b
2) 20b/40b
Now before the 3rd one the 1st one has been paid back, so we're at 20b outstanding
3) 30b/50b
2nd one paid back, 30b outstanding
4) 30b/60b
3rd one paid back, 30b outstanding

 

[cputter]

Thanks for the clear explanation JordanQ.


I'm still trying to wrap my head around something. The non-borrowed reserves isn't something physical then? Merely the difference between the reserves they physically have and whatever they're loaning out.

So a negative value merely indicates that they're lending out more money then they have in reserve.

Which is legal I guess?



So all in all, nothing majorly serious I guess. Except of course for the fact that this is the first time in history that they needed to do this...

Can you tell me why the numbers are so small though? 40 billion in reserve doesn't seem like much for some reason. At least not compared to the entire economy.

And why are these TAF loans having such a big impact compared to the normal loans they make?

Or am I just aksing silly questions?

 

[JordanQ72]

The non-borrowed reserves isn't something physical then? Merely the difference between the reserves they physically have and whatever they're loaning out.

So a negative value merely indicates that they're lending out more money then they have in reserve.

Which is legal I guess?

I just want to make sure you have your 'they's straight.

A negative value indicates that the FED has lent out more money than the private banks maintain as deposit reserves, and yes, non-borrowed reserves are not something physical, just an accounting artifact. In terms of legality, I really don't think there's much that they can do that is illegal in the frame of monetary policy.

So all in all, nothing majorly serious I guess.

That depends on who you ask around here. I'm not going to hide that various individuals have drasticly different interpretations of this data than I do. PM or look around for some threads made by Jonahtrainer, like http://www.ronpaulforums.com/showthread.php?t=110481

Can you tell me why the numbers are so small though? 40 billion in reserve doesn't seem like much for some reason. At least not compared to the entire economy.

The reserve requirement is a tricky concept. Most people think it's a flat 10% of any incoming money, but that's not really true. Depending on the account type and value as well as other details, it can range anywhere from 0 to 10%.

And why are these TAF loans having such a big impact compared to the normal loans they make?

Normally, banks don't borrow from the Federal Reserve. Other banks and other entities loan money to banks at lower rates than the FED charges, and in terms of non-borrowed reserves, that only factors in FED loans, not loans from other banks and entities, it's why that borrowing has only recently shown up in H.3

So, we're in a situation where banks want to loan money at some rate, the FED wants to loan it at a higher rate than that even, and no one is borrowing any money because they feel it's too risky, and they won't make a profit off it. Now, the FED could very well just plummet the discount rate to 2%, but that would have too many banks rushing to the window in their opinion. Once they set a rate, they can't simply stop lending at the discount window after a certain point, the option would be to reraise the discount rate. So, instead of playing yo-yo with the rates on a daily basis, they decided to form these TAF loans. They loan out money at a lower rate, but a pre-defined limited amount. Personally, I don't see it as a good sign. I rather we be in an environment where people aren't worried about lending money, but I don't take quite the doomsday viewpoint others do around here.

 

[cputter]

I'm getting smarter by the minute when reading your posts.

That all makes sense now, thanks.

I do find it interesting though that they're auctioning off those loans and letting the market decide what the rate should be. If only they'd thought of that earlier. Maybe even introduce some competition for them selves and allow other institutes to print money too...

wishful thinking I guess.


Don't know enough about economics to predict total economic collapse just yet. Though it would appear as if it all hinges on the market's trust in the dollar, ie. government. I think most people would prefer it if the fed could continue with their shell game...

guess we'll have to wait and see.

 

[slantedview]

this has been discussed a bit over in the economics sub-forum. i'll direct you to there

http://www.ronpaulforums.com/forumdisplay.php?f=204