Friday, October 23, 2009

U.S. Bank Reserves Rise Above A Trillion Dollars

In the week to October 21, bank reserves (excluding vault cash) rose to a record 1,034.1 billion.In October 21, reserves reached a record $1,056.2 billion. Before September 2008, reserves were just about $40 billion.

Including vault cash and currency in circulation, the monetary base is now approaching $2 trillion, compared to $840 billion in August 2008.

This explosion in the monetary base however has in recent months not affected money supply which after a big run-up in late 2008 and early 2009 has in recent months remained stagnant. The reason for this is the Fed's decision to pay interest on commerical bank deposits at the Fed, something which helps boost profits in the banking industry, but limits the intended inflationary effect.