Financial Firms Borrow More And More Money From The Fed

I’m going to start right off by saying that there’s plenty I don’t know about the inner workings of the Federal Reserve and the day-to-day nuts-and-bolts of managing monetary policy.

That said, I have to admit that the following post from the Financial Ninja blog, “Really Scary Fed Charts: JUNE, ‘Just’ 1% of GDP Now,” is enough to give anyone the willies.

In my last update Really Scary Fed Charts MAY: False Alarm? I presented two different views on the continued rapid deterioration of the U.S. financial system.

Over at CalculatedRisk they are being interpreted as a “false alarm” in Non-Borrow Reserves and the Fed’s Balance Sheet. Over at MarketTicker they are being interpreted as evidence that “the system as a whole is insolvent” in Tall Tale Tuesday.

Another month and another couple billion later, the Fed Charts just keep getting scarier.

Last month Total Borrowings of Depository Institutions from the Federal Reserve (BORROW) were around $140 billion.

Total Borrowings now amount to about $155 billion

Allow me to put that into context:
1) The entire Bush stimulus package was $145 billion.
2) The stimulus package was 1% of GDP

How comfortable are you with the fact that stricken financial firms have borrowed the equivalent of 1% of GDP from the Federal Reserve? (Oh sweet baby Jesus, you better hope Ben ‘Helicopter’ Bernanke really really knows what he’s doing…)

Last month Non-Borrowed Reserves of Depository Institutions (BOGNONBR) were around negative $90 billion.

The balance sheets of almost all financial institutions, whether they are depository institutions or prime brokers, will deteriorate further. They have to. The vast majority of their balance sheets are now in the Level 2 or 3 asset buckets. I can’t imagine that these assets are currently being undervalued or even conservatively valued.

That’s just now how these fellows roll. It’s Wall Street.

Clearly the credit crunch is far from over… (BORROW/BOGNONBR) Most of this nightmare is the result of Bernanke’s new, innovative, and numerous liquidity facilities.

Posted in Categories: Contributor, Economy, External Research, USA.

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