Saturday, June 20, 2009

Latest U.S. Monetary Trends

The Fed balance sheet has declined this year by nearly 9%, from $2,246 billion in the week to December 31, 2008 to $2,055 billion in the week to June 17, 2009. Almost as interesting though is the shift in composition.

"Securities held outright" has increased from $496 billion to $1,176 billion, as the Fed has increased its holdings of Treasury Notes and Bonds from $476 billion to $633 billion and increased its holding of Agency securities from $20 billion to $88 billion while also buying $455 billion of Mortgage backed securities.

But this has been more than offset by a decrease in other items from $1,750 billion to $879 billion. Particularly central bank liquidity swaps and commercial paper funding facility has declined dramatically.

It should be noted that some of these other items do not affect the monetary base, and so the monetary base has not declined and instead remained roughly unchanged at around $1,700 billion.

And money supply has continued to increase, though in the last three months only marginally for M2(up only 0.6% at an annual rate in the 12 weeks between March 16 and June 8). Since institutional money market funds (part of MZM, but not M2) have increased while small time deposits (part of M2, but not MZM) have dropped significantly, MZM is up by a more significant annualized 4.8%. That is however a lot lower than the annualized 20.5% rate in the preceding 23 weeks. That implies a slower increase in commodity prices, though that also depends on how the Chinese economy develops.


Blogger Celal Birader said...

Looks like BB is cycling through the Fed balance sheet trying to fix one problem after another : first to unfreeze credit markets [domestic & international] with the swap arrangements and the commercial paper facility .

Now that these markets are "unfrozen" he has moved on to fix the mortgage market . I'm not sure he will be successful with this round since Treasury yields have climbed and are high.

Moreover, i believe now (correct me if i'm wrong) the value of USD is more at risk as he tries to juggle interest rates to support the housing market and also meet funding requirement for the deficit.

9:00 AM  

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