Reserves and Off Balance Sheet Securities Lending

My fishing buddy David Kotok, who runs Cumberland Advisors, offers up this fascinating chartporn review of how the Fed is spreading the wealth:


Factors Adding to Reserves and Off Balance Sheet Securities Lending

Source: Federal Reserve Board of Governors Statistical Release H.4.1. Data through 6/19/08.

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Discussions found on the web:
  1. Pat G. commented on Jun 27

    I am sure relieved to learn that they are spending our money so wisely!

  2. VennData commented on Jun 27

    Reminds me vaguely of a cutaway of the San Andreas fault for some reason.

  3. Andy Tabbo commented on Jun 27

    Vince Farrell just informed the CNBC audience not to panic. This is the same guy who said that we made a bottom in January and that we successfully tested that low in March (Even though we actually took out the January low.) When the market started fallling from 1440 he said “It’s very normal to have a 50% give back. We had a big move up from the March lows. It’s going to be OK.”

    Why is this man on television still? Why does have any investors? Why is Dennis Neale on television? Why is Steve Leisman a shill for the Fed. Why does Erin Burnett always feel compelled to put a silver lining on everything? Why does anybody believe anything these people say?

    – AT

  4. joeblo commented on Jun 27

    Where do the off balance-sheet securities being lent come from? Is this a another european initiative or are these private entities? It doesn’t look like it’s part of the FED, but $100B seems awfully large for something I’ve never heard of.

    Appologies, if this has been discussed before.

  5. Chief Tomahawk commented on Jun 27

    That “Off Balance Sheet” yellow portion resembles a tumor…

  6. Donkei commented on Jun 27

    A fishing buddy? I’m gonna have to change my opinion of youse guys from the city.

    I bet it’s fly-fishing. I do a bit of it down here–but it’s too warm for trout streams, so I go for mostly bass and bream.

    So far as the chart goes, it does look geological. Like an earthquake fault line about to shear.

  7. george commented on Jun 27

    fucking amazing when you really think about it

  8. wunsacon commented on Jun 27

    So, is there enough fear in the market to cause a bounce?

    I read some pundits are now starting to think “sell”. So, on the one hand, Mark Hulbert’s evidence shows it often pays to be a contrarian. But, on the other hand, that’s not the case if the trend strengthens.

    Where would the crowd put its money, though? Well, if they’re falling behind on payments on everything, they might need to pay bills using the cash from their IRAs. Those are sales.

    I might just be trying to validate my shorts. (Well, I’m long/short.)

  9. DL commented on Jun 27

    “Off Balance Sheet”.

    Isn’t that what got Enron into trouble?

  10. Lulu commented on Jun 27

    If I only I had a clue what this chart means.

    Barry I’d love some explanation and commentary to help those of us who dont know the difference between all those pretty colors.

  11. DL commented on Jun 27

    The Fed should get out of the mortgage business.

    Let some banks fail.

    We survived the 1989-1991 period, we can do it again.

  12. Vermont Trader commented on Jun 27

    looks like the PPT is working the crude pits today.. here we go!

  13. Katie commented on Jun 27

    Bernanke seems to be worse than Greenspan. I didn’t think that this was possible.

  14. DL commented on Jun 27

    Andy Tabbo @ 1:19:59 PM

    “Why is this man on television still? … … Why does anybody believe anything these people say?”

    I’ve often wondered the same thing. My guess is that the producers of the show are making a bet that the majority of viewers are long most of the time, and that they are more likely to watch the show if the people on the show are constantly saying that stocks only go up, never down.

    However, on the show “Fast Money” they are not always wedded to the bull side. Pete Najarian, Karen Finerman and Jeff Macke are all willing, on occasion, to admit that stocks can go down as well as up.

  15. Risk Averse Alert commented on Jun 27

    Did y’all see the interview with Marc Faber this morning on CNBC’s Worldwide Exchange?

    This could be made into a MasterCard commercial … if only more fantasy than truth could be assigned to Mr. Faber’s conclusions.

    “Calling Wall Street’s Sugar Daddy a Bankrupt Joke … PRICELESS.”

    The real priceless part, though, was the stunned speechlessness that swept over CNBC studios across the globe. I don’t suppose Mr. Faber will be doing many more guest appearances on the network first in perma-bull…

  16. michael schumacher commented on Jun 27

    Looks like “yellow submarine”

    Too bad “we all live in a …..”


  17. Andy Tabbo commented on Jun 27


    Agree with your sentiment re: Fast Money folks. That’s the ONLY segment on CNBC that I don’t treat like a contrary indicator. And I like Dylan Ratigan. I think he’s a very good anchor…the best they have.

    – AT.

  18. jake commented on Jun 27

    the other idiot built up farrell’s reputation…mr kudlow

  19. JJ commented on Jun 27

    This amazing device is from the Fed.

    They are undoubtedly almost somehow likely perhaps set to take immediate action based on the all-too-obvious implications of this eye-chart.

    Personally, I feel they should really try harder next time to just make the lines look a little flatter on this chart – too many mountains are a strain on the mileage account. I think that would help everyone feel better about living in America in this new millenium.

  20. stuart commented on Jun 27

    So basically now we have the Fed backing the dollar up largely with the same toxic crap that got the banks into the trouble in the first place. Little wonder it’s falling.

  21. bonghiteric commented on Jun 27

    From Wikipedia’s entry on Orwell’s Brave New World: SOMA – “…a powerful psychotropic rationed by the government that is taken to escape pain and bad memories through hallucinatory fantasies…”

    Reads strikingly similar to the Fed’s System Open Market Account (SOMA)

  22. JBL commented on Jun 27

    So, what’s the net equity of the institutions borrowing from the Fed?

  23. Joe S commented on Jun 27

    Can I tagalong on these fishing trips? It would be quite an amazing experience to listen to you all together….

  24. BobC commented on Jun 27

    Soooo …

    What does off-balance sheet mean? Sounds like cooking the books. I mean come on. If I kept stuff off the balance sheet wouldn’t I go to jail?

    I’m confused.

  25. James Hogan commented on Jun 27

    There are no swans of any color associated with this debacle. It’s a problem as old as the hills: There’s more “money” in circulation than there is value to back it up.

    Hell, we’ve gotten so sophisticated that we can even call debt money. How do you like that, sports fans? IOU becomes M-O-N-E-Y. Hooboy! What a genius musta thought that up.

    Now that we really, really need ’em, where have all the geniuses gone?

  26. DavidB commented on Jun 28

    Why does that not surprise me?

  27. Blissex commented on Jun 28

    «If its truly how the Fed is growing its balance sheet (swapping MBS w/ its seal of approval back for treasuries, then pumping the treasuries back out for more MBS), then the Fed is essentially creating a ponzi scheme.»

    The Fed can do any Ponzi scheme it wants, that’s essentially its role. Where do you think “liquidity” comes from?

    The problem with fractional reserve “money” etc. is not that it is a Ponzi scheme, as the goldbugs say, it when the Ponzi scheme becomes faster than it should be.

    The Fed is currently in the role of preventing bank insolvencies by swapping insolvent debt with solvent instruments (insolvent debt is of course illiquid, so talking of a “liquidity problem” is just a euphemism).

    The Fed is also trying to help banks generate enormous carry trade profits to rebuild their balance sheets by supplying them with negative real rate money.

    Both are excessive Ponzi schemes used because the alternative is to recapitalize the banks and to buy their insolvent debts via the Tresury, and that would look a bit too like nationalization and would lead to calls for sacking the corrupt management of those banks.

    Instead by doing essentially the same via the Fed the management can continue to manage to pay themselves and their political tools very well, and the fiction that there is private capital at risk in the big banks maintained.

  28. hr commented on Jun 29

    The better question is when is the Fed going to run out of the blue stuff at the bottom of the chart (Securities)?

    Side question: what are securities?

    Also, Barry, you are more correct than you know in speaking of chartporn: Who drew this chart cutting off the bottom at $450 billion? That is a distortion of the decline in the number of securities. Wasn’t that covered in the book “How to Lie With Statistics” ?

  29. RWoz commented on Jun 30

    David B: wonderful post.

    Blissex: in answer to your question the Fed spells out what they mean by securities in the text under the chart.

    “For many years prior to the most recent turmoil that has occurred in financial markets, the bulk of the Federal Reserve’s assets were in the form of its holdings of US Treasury securities. Nearly 90% on average of its assets were of this type. Other major asset categories included Treasury currency and the gold stock.

    So until a year ago the great bulk of Fed assetts were T-bills, with cash and gold also playing a small role.

    Now? It’s a alphabet soup of things that are all basically junk bonds when you get down to it.

    When I first had the origin of US money explained to me I was told: all US money is created as debt. Now I think we can say “much US money is created as bad debt”.

  30. JT commented on Jul 1


    I had a moment so I sent The Federal Reserve an email, see following:

    Please begin to raise interest rates, you are loaning money under inflation levels. The average working class person is getting crushed in middle America. Interest rates are not lower and as more people tap out credit cards, the wave of defaults will become larger and larger. This sets the stage for higher consumer interest rates whether or not “The Fed” rates are low. Right now, you are paying banks to take your money. We have tried the low interest rate float and it is failing. We need to go to plan B which is crush inflation, thank you.

    Here is their response.

    Thank you for your most recent correspondence concerning the effects of the federal funds rate on consumers and you asked the Federal Reserve to raise the current level of interest rates.

    By targeting the federal funds rate, the Federal Open Market Committee (FOMC) seeks to provide the monetary stimulus required to foster a healthy economy. A lower federal funds rate increases the amount of money and credit banks have on hand and ultimately affects other interest rates and the performance of the economy. It is important to recognize that the rates that actually prevail are determined by a number of forces, and not by Federal Reserve actions alone. The Federal Reserve has considerable influence over some short-term interest rates, such as the federal funds rate. But the Federal Reserve has less control over other short-term rates, and long-term rates often do not respond at all to Federal Reserve’s actions or respond with considerable delay. Mortgage rates also are affected by the economic factors that affect most other long- term rates. Mortgage rates, however, sometimes rise or fall more than other long-term rates because of the additional investment risks to lenders who make mortgage loans. For example, a portion of the additional cost of mortgage credit compensates lenders for the risk of default, while another portion compensates lenders for the option that homeowners have to refinance their mortgages when interest rates decline.

    Please know that the Federal Reserve’s monetary policy actions are not aimed at influencing or correcting any particular market or segment of the population. The goal of monetary policy is to foster conditions conducive to sustaining sound, noninflationary economic growth over time, and policymakers must make decisions that provide the greatest benefit to the economy overall.

    Again, thank you for writing.


    Board Staff

    I will give them credit, their money is worthless but they do have excellent customer service. I like the part where they say that policy is not aimed at a particular segment of the market or population. This one has a long way to go before it gets ugly.

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