Wednesday, January 30, 2008

Bank Reserves Go Negative

Usually I focus on things and events that I can influence or make a buck at (and no, I don't know nothin' about the fifth at Belmont). Hence, not a lot of Thermageddon* or Financial Armageddon** on the blog. But, with two rate cuts within a week, 125 basis points, you've got to wonder, just how big is the turd floating in the economic punchbowl? Is it like an iceberg; nine-tenths hidden? Here's one hint, from Mish's Global Economic Trend Analysis:

I have been watching a chart of Borrowed Bank Reserves for several weeks. The action is unprecedented.

Borrowed Reserves of Depository Institutions

click on chart for sharper image.

The NFORBES Chart above is courtesy of St. Louis Fed.

Here's an interesting excerpt from the book Investing Public Funds by Girard Miller about borrowed reserves.

"Another useful indicator of the Federal Reserve's relative monetary policies can be found weekly in the Federal Reserve data. A key statistic is the net free reserves or net borrowed reserves line item....MORE

Thermageddon : Countdown to 2030
by Robert Hunter - 2003 - 300 pages

**Financial Armageddon blog:
Main Street's March towards Recession