Rep. Paul Ryan (R-Wis.) on Tuesday unveiled a budget that proposes to cut $5.1 trillion over a decade in a bid to erase the federal deficit, while calling once again for dramatic changes to Medicare, Medicaid and the tax code. Read more.Now he's about to become even more powerful as he ascends to the role of Chairman of the House Ways and Means Committee as Dave Camp (R-Mich) just announced his retirement.
And throw in the fact that the Balanced Budget Convention is gaining steam. Europe, here we come!
Similar cr*p was recently uttered by the head of the British Chambers of Commerce. See:
ReplyDeletehttp://www.thisismoney.co.uk/money/news/article-2594064/BCC-conference-Vince-Cable-urge-business-leaders-export.html
Hi Gang - A little off topic here but I need some help to answer a question about QE and excess reserves. If Fed balance sheet is now up to $4+ trillion and only about half of that shows up as excess reserves, does that mean that the other half has gone into equity, commodity, credit & EM speculation? About half of the Fed Balance sheet is in MBS.
ReplyDeleteEd I think that is just some sort of regulatory requirement/ratio....
ReplyDeleteso for instance if the regulators came out and said "reserve requirements" were now increased to $4T, there would be no more "excess reserves"...
rsp,
Not to worry, folks. Thomas Piketty's book will change everything. Paul Ryan will be forced to admit that instead of cuts, America requires a New Deal with policies that reduce inequality.
ReplyDeleteEd,
ReplyDelete"Fed balance sheet is now up to $4+ trillion and only about half of that shows up as excess reserves"
Where did you see that excess reserves figure?
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ReplyDeleteEd,
ReplyDeleteI just had a look at the Fed balance sheet. You can see the relevant data in section 8 here:
http://www.federalreserve.gov/releases/h41/current/
There's about 2 trillion of reserve balances. The rest of the liabilities are notes, reverse repos, the Treasury's balance, foreign official balances, term deposits, GSE balances, and 'other'.
y - Right. My point is that the fed balance sheet is over $4 trillion now after being about $800+ billion prior to the credit collapse in 2008. However, looks like excess reserves are only about $2.3 trillion in H3 report (see below). If I'm reading the report right I am left wondering what happened to the roughly $2 trillion of reserves not accounted for in the H3 report. Have those reserves been channeled into speculative outlets in the real economy?
ReplyDeleteThe Fed H3 report: http://1.usa.gov/1fMmjyB shows latest "Balances maintained that exceed the top of the penalty- free band" in the 3rd column from the right at $2,308,978, which I take to be excess reserves, although I am not sure. I think the report has changed because as I recall there used to be a column explicitly labeled Excess Reserves.
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ReplyDeleteThis comment has been removed by the author.
ReplyDeleteEd,
ReplyDeleteI dont think there is any relationship between "reserves" and what type of assets a bank management decides to position on their balance sheet...
Banks obtain assets based on how much capital they have and what type of risks they want to take.
I think "reserves" so-called are more or less a monetarist concept involved in bank regulation... the people who advocate for like "regulation of reserves" think that moving these requirements around somehow acts to control "inflation" or such things.... its derived from quantity theory and so forth...
rsp,
Had a proper look at the figures (in $billions):
ReplyDeleteTotal federal reserve bank assets = $4,226,971
Total federal reserve bank liabilities = $4,170,870
The liabilities consist of:
$2,611,169 in reserve balances held by depository institutions
$1,224,796 in federal reserve notes in circulation and in commercial bank vaults
= $3,835,965
That's near to $4 trillion
The rest of the Fed's liabilities are:
US Treasury account balance
Foreign official account balances
term deposits held at the Fed
reverse repos
misc. other
"Have those reserves been channeled into speculative outlets in the real economy?"
No. The missing 'reserves' are not reserves at all but other types of liabilities, listed above and on the balance sheet.
y - Thanx! This is all in the H.4.1 report? Just to clarify my thinking... on the liability side are you able to determine how much of the $3,835,965 are excess reserves?
ReplyDeleteScroll down to section 8. 'Consolidated Statement of Condition of All Federal Reserve Banks'. It lists their assets and liabilities.
ReplyDeleteUnder liabilities, the first item is federal reserve notes, which is over $1 trillion. This must include both notes in circulation and notes held as reserves in bank vaults.
Under 'deposits' it lists all the deposits held at federal reserve banks. This includes the reserve balances of depository institutions (commercial banks) and GSEs.
Bank reserve balances are listed as "Other deposits held by depository institutions". The figure for this is $2,611,169 billion.
It doesn't say how much of that is 'excess' reserves though.
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ReplyDeletesorry, the figures in my comment above are in millions, not billions.
ReplyDeleteThis page shows the level of excess bank reserves:
ReplyDeletehttp://www.federalreserve.gov/releases/h3/current/
Ed,
ReplyDeletecoming back to your question. You can't tell what people in the private sector have been doing with the money they received through QE (in exchange for bonds and MBS) by looking at the Fed's accounts.
If a bank sells a bond to the Fed, the Fed balance sheet will just show an increase in reserves as liabilities and an increase in bonds as assets. To know what the bank then does you would have to look at the bank's balance sheet.
Say the bank then buys a bond from someone who has an account at the bank. The bank's balance sheet will show an increase in deposits as liabilities and an increase in bonds as assets. The bank's reserves will be unchanged.
If the Fed buys a bond directly from a non-bank as part of QE, the non-bank gets a bank deposit and their bank gets additional reserves. Again, to know what the non-bank then does with the money, you would have to look at their balance sheet. You can't tell what the non-bank does with the money by looking at the Fed's balance sheet, as all it will show is an increase in reserve balances (liabilities) and an increase in bonds (assets).
This Fed research paper analyses it, by looking at Flow of Funds data:
ReplyDeletehttp://www.federalreserve.gov/pubs/feds/2013/201332/201332pap.pdf
Thanx y! Your comments are all very helpful.
ReplyDelete