[TheDude]

Sounds like something out of Die Walkure.

Ilargi posted this chart today at The Automatic Earth, with the advice

My friend Francois sends this graph from the St. Louis Fed. I suggest you take a good long hard look:

In case it's not evident, the red and blue lines fly off the chart for lack of scale. The original post links to a full size image.

Trying to find out what exactly "bognonbr" is ("Non-Borrowed Reserves of Depository Institutions") I get equally puzzled/alarmed postings at kitco, gotinflation.com, what have you.

Money Matters: Strange And Scary Federal Reserve Charts!

The main thing here is, both the 9/11 spike and the present collapse are UNPRECEDENTED. They are very destabilizing and are indicators of something very twisted and out of ordinary. Any way we look at this, it is terrible. It is also obvious that this crisis is much worse than the one that brought into being both the Bretton Woods II and the Plaza Accords. I sometimes read officials musing about the possibility of solving this mess via such a meeting but it never happens since it means China gets to dictate some terms to us in exchange of changing the value of the yuan. Namely, we have to live within a strict budget.

[Dreamtwister]

That first image is scary as hell. I mean, I've seen some scary shit posted here before, but that chart...I can't even describe it.

[perdition79]

That first image is scary as hell. I mean, I've seen some scary crap posted here before, but that chart...I can't even describe it.

Even if you ignore all the money the banks borrowed, just the fact that the Federal Reserve is lending hundreds of billions of dollars that they don't have is scary. If that isn't slamming into a brick wall at 500 mph, I don't know what is.

[seldom_seen]

That's the graph you're sure never to see on the NBC Today show, or all the other happy happy buy and spend consumer prozac channels.

They've been drilling in to our heads that it's a "liquidity crisis" and the banks just need to regain a lil' confidence and start lending to each other again. That's the graph though I think people are using to say...umm...excuse me...this is more than a liquidity crisis the banks are insolvent (aka broke).

"Non-Borrowed Reserves of Depository Institutions" is fancy talk for "Yo, pizon, you got any freakin cash?" The answer obviously being no. "Well pizon you owe a lot of freakin people a lotta freakin money. Hank don't like that. You saws what he did to Lehman and Bear Stearns. Don't make Hank send me back here."

[ReverseEngineer]

Asymptotic approach to the Zero Point.

The graph here shows accurately what I have been trying to say in words, but having difficulty making people understand.

You get neither inflation or deflation resulting from this. You get collapse of the system.

The Debt has been pushed virtually to infinity, now the money supply is being pushed to infinity to compensate for that. Its meaningless numbers now, has no reflection to actual value of anything. Matter and Anti-Matter meet, result TOTAL ANNIHILIATION.

What of Lazarus?

Reverse Engineer

[TreebeardsUncle]

Ok.
This is critical. So, this means that the banks are beyond undercapitalized. The ratio of debt to equity is beyond 30:1 or so?
That means that the amount due to be paid back far exceeds their assets. Many of the banks will have to be nationalized. Think WFB and JP Morgan are still in good shape but BofA and Citibank may be insolvent.

Comments?
g

[TheDude]

The general consensus seems to be Insolvency.

Now, where have I seen another chart depicting value of something reaching Escape Velocity on a relative scale? Hmmm...



You might say the recent downturn would make this a hockey stick with a big splinter in its bottom, but how much of a blow to the chin has world GDP taken lately too, pizon?

[CrudeAwakening]

It's a result of the Term Auction Facility (TAF) program, where the Fed loaned reserves against a wider range of collateral than was previously possible.

The Fed sterilized this increase in reserves by selling treasuries via its open market operations, which caused a roughly offsetting decrease in non-borrowed reserves.

In other words, they took 'non-borrowed' fed funds out of the system, and put 'borrowed' funds into the system. Reserves were reclassified from non-borrowed to borrowed, a consequence of the Fed lending reserves to banks and permanently withdrawing reserves simulatenously.

It doesn't mean, in and of itself, that banks are undercapitalised (though I'm sure many of them are). The fact that they've had to resort to all these accounting shenanigans to keep things afloat is a reflection of the dire straits the banking system is in, though.

[pedalling_faster]

non borrowed reserves, another image

maybe this is clearer.

well, at least they updated it. the last curve was frozen at -$125 billion for a few months, when all sorts of stuff was happening.

-$190 billion.

earlier this year, February maybe, it was -$15 billion, with the same curve shape - going off a cliff.

so the rate of decrease is, about -$60 billion every 3 months. starting at about 0 January 2008.

i haven't heard a single financial writer/ journalist talk about it. you'd think one of them would have a go.

they might need to start using logarithmic paper. it would make it easier to read.

i'm surprised they publish it. but since they do -
EXCRESNS, Excess Reserves of Depository Institutions


RSBKCRNS, Reserve Bank Credit


TOTBORR, Total Borrowings of Depository Institutions from the Federal Reserve

[TheDude]

Good God, anybody catch this on Bloomberg.com: Worldwide?

Fannie and Freddie began notifying bond traders last week that each company needs to buy $20 billion a month in mostly subprime, Alt-A and non-performing prime mortgage securities, according to the people, who asked not to be identified because the plans are confidential. The purchases would be separate from the U.S. Treasury's $700 billion Troubled Asset Relief Program.

The Federal Housing Finance Agency, which placed the two companies in conservatorship on Sept. 7, directed them last month to start increasing their purchases of loans and mortgage-backed securities as the Treasury seeks to absorb underperforming and illiquid assets from financial companies.

No wonder Rocc retired! This is tantamount to another Iraq War - Plus!

[Blueberry]

How is this like another Iraq?

I'm not in finance and trying to figure this stuff out!

[TheDude]

How is this like another Iraq?

I'm not in finance and trying to figure this stuff out!

I mean in terms of cost. The [s]war[/s] occupation of Iraq is "only" costing the US about $12 Billion/month.

And here's hoping the US won't turn into a bloodbath, insurgents, IEDs.

[IgnoranceIsBliss]

I recently came to the conclusion that this can only be the straw that broke the camel's back. The US was in deep trouble with our budget before Iraq or this credit mess. (enough to keep me up at night back then!) Those problems may or may not have been "fixable" through cuts in benefits and much higher taxes, but it wasn't necessary game over yet.

Now it's another story. Even if we manage to "fix" the credit crunch, the financial impact on the US will be catastrophic. So it looks like the choice has been made for me. My family will be putting our plan B into action, and making the difficult choice to try to relocate outside of the US.
It's probably too late, which is really depressing.

[DantesPeak]

Good God, anybody catch this on Bloomberg.com: Worldwide?

Fannie and Freddie began notifying bond traders last week that each company needs to buy $20 billion a month in mostly subprime, Alt-A and non-performing prime mortgage securities, according to the people, who asked not to be identified because the plans are confidential. The purchases would be separate from the U.S. Treasury's $700 billion Troubled Asset Relief Program.

The Federal Housing Finance Agency, which placed the two companies in conservatorship on Sept. 7, directed them last month to start increasing their purchases of loans and mortgage-backed securities as the Treasury seeks to absorb underperforming and illiquid assets from financial companies.

No wonder Rocc retired! This is tantamount to another Iraq War - Plus!

I think most failed to notice that F & F bailout bill (before TARP) gave the government wide powers. Keep in mind that F & F can buy an unlimited amount of mortgage rleated assets, including derivatives. As a conservatorship, the government can do almost anything with F & F assets. BTW - their stocks while trading at about $1 can only end up being totally worthless.

Anyway, I believe a decision has been made to have F & F buy distressed assets, so that the $700 billion from TARP can be used to buy financial company preferred stocks, and if necessary, stocks on the open market. As I mentioned before, TARP does allow the government to even buy stock right out of retirement plans.

[DantesPeak]

It's a result of the Term Auction Facility (TAF) program, where the Fed loaned reserves against a wider range of collateral than was previously possible.

The Fed sterilized this increase in reserves by selling treasuries via its open market operations, which caused a roughly offsetting decrease in non-borrowed reserves.

In other words, they took 'non-borrowed' fed funds out of the system, and put 'borrowed' funds into the system. Reserves were reclassified from non-borrowed to borrowed, a consequence of the Fed lending reserves to banks and permanently withdrawing reserves simulatenously.

It doesn't mean, in and of itself, that banks are undercapitalised (though I'm sure many of them are). The fact that they've had to resort to all these accounting shenanigans to keep things afloat is a reflection of the dire straits the banking system is in, though.

Well stated, but the amount of special Treasury borrowing, totalling $470 billion on Thursday, while 'sterilized' still expand the money supply. The money essentially comes from money market fund investors, but is relent through the Fed to financial firms. Thus the multiplier effect occurs when the financial firms make loans and expand their balance sheet.

Please note the money supply is growing at a fastest rate in history over the last month, and 'cash' is only a small part of that gain.

[nobodypanic]

I recently came to the conclusion that this can only be the straw that broke the camel's back. The US was in deep trouble with our budget before Iraq or this credit mess. (enough to keep me up at night back then!) Those problems may or may not have been "fixable" through cuts in benefits and much higher taxes, but it wasn't necessary game over yet.

Now it's another story. Even if we manage to "fix" the credit crunch, the financial impact on the US will be catastrophic. So it looks like the choice has been made for me. My family will be putting our plan B into action, and making the difficult choice to try to relocate outside of the US.
It's probably too late, which is really depressing.

if your plan is to relocate outside the US, well, i have to ask, this looks to be a global collapase--a no where to run to, no where to hide type of event. what exactly is your thought process here?

[dohboi]

Our economic and political system came to an end in the last couple weeks. These charts make that stunningly clear, if you needed further confirmation.

How long till this really hits us folks on the street?


I was particularly fond of this little nugget from the Ilargi piece:

"You now cost more to maintain than you deliver in productivity.

You have been written off.

And so have your kids.

The markets do work."

[Cid_Yama]

Here's a better scale of the chart

link

[TreebeardsUncle]

Am particularly concerned about the banks borrowing so much from the federal reserve. It is astronomically higher than at any time in the past since the 01 recession. Won't this lead to a great deal of inflation?
g