At the end of the banking week closing on Wednesday September 3, 2008, Federal Reserve Bank credit amounted to $887.3 billion or roughly $0.9 trillion. At the close of the banking week ending Wednesday October 8, Federal Reserve Bank credit totaled $1,575.6 billion or about $1.6 trillion. The increase in Federal Reserve Bank credit rose 77.6% in five weeks! These figures are from the Federal Reserve release H.4.1, Factors Affecting Reserve Balances of Depository Institutions and Condition Statement of Federal Reserve Banks.
Reserve balances with Federal Reserve Banks rose from $3.8 billion in the earlier Wednesday to $175.6 billion on Wednesday October 8. (On a daily average basis the figure for the week ending October 9, 2008 was $119.7 billion, up from $10.9 billion for the week ending September 3, 2008, and up from $7.1 billion in the banking week ending October 10, 2007.) Again, these figures are from the Federal Reserve release H.4.1.
In terms of total bank reserves, a figure that also includes vault cash used to satisfy reserve requirements, the increase has been massive. Total bank reserves (on a non-seasonally adjusted basis), averaged $44.2 billion during the two weeks ending September 10, 2008. For the two weeks ending September 24, total bank reserves averaged $111.3 billion! And, for the two weeks ending October 8, total bank reserves averaged $179.5 billion! Using monthly figures, total bank reserves for September 2008 are 243% larger than September 2007!
Wow! I’m breathless!
The Monetary Base also shows substantial increases. (The Monetary Base consists of all things that are bank reserves or could become bank reserves, like the currency component of the money stock.) In the two weeks ending September 10, 2008, the Monetary Base averaged $849.9 billion. This figure rose to $915.1 billion in the two weeks ending September 24 and then climbed to $989.8 in the two weeks ending October 8. The year-over-year increase from September 2007 to September 2008 is 9.9%! (This year-over-year increase is as low as it is because the currency component of the money stock is such a large part of the measure and this figure doesn’t change very much over time. Still, an increase of about 10% is a huge increase!)
The plan of the Federal Reserve is to liquefy world financial markets as much as possible. It is doing its job. The problem seems to be that there is a liquidity trap. (See my post of October 8, 2008, “Caught in a Liquidity Trap”.) The Fed is pushing out the liquidity…but institutions are absorbing the liquidity without pushing it on.