The Fed Update will not be posted this week. Nothing of substance changed in any of the measures tracked in the report, with the exception of those already covered in the Treasury update. I have referred the issue to the Department of Redundancy which confirmed that attempting to catch up with stale, repetitive data this late in the week (thanks to the Housing Update) would drive subscribers nuts. Trust me, if there was anything new to tell you, I’d write it. If you really want to torture yourself, read last week’s report again. The most material differences that cropped, as covered in the Treasury update, was the fact that the banks bought Treasuries hand over fist in the week ended November 21 as they were deluged with the first of the Fed’s QE 3 cash flows that week.
I’ll just add here that there was a big paydown of MBS from the Fed’s balance sheet in the week ended November 28, causing a temporary and meaningless drop in the SOMA. That will be replenished and then some from the $70 billion plus in MBS purchase settlements coming up December 12-20. Likewise, the tilt in the Twist toward more purchases than sales already recovered some of that drop this week, since the weekly closing of the H41 last Wednesday. So the drop in assets is temporary and a non-issue.
On the liability side, total liabilities fell to match the drop in assets. However, as expected, bank reserves at the Fed grew when $43.6 billion finally shifted out of Other deposits (Primary Dealer accounts, GSE’s, and foreign official organizations) resulting in an increase of bank deposits at the Fed, which are counted as reserves. That means that lagging monetary base data will finally start to catch up with the first of the QE3 MBS purchase settlements, totaling $60 billion, that took place from November 14-20. Some of that was immediately sucked up by the Treasury before it got into the banking system. That cash will show up in bank reserves in the statement for this week when the Treasury’s turn of the month payments to social security recipients, federal workers, and government contractors are deposited in bank accounts.
These technicalities are the equivalent of your three year old pushing spaghetti around on the plate. The important fact is that $80-85 billion in cash will continue to flow into the accounts of the primary dealers every month until the Fed changes course, which doesn’t look as though it will be anytime soon. In fact, if the government dives off the fecal cliff, the Fed will react as it always has in any crisis, real or imagined. It will print more money, and the cash flowing into dealer accounts will only increase. And you know what that means.
The next weekly report will be posted, change or no change.
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