The Fed deposited $21.6 billion in cash into Primary Dealer trading accounts in the holiday shortened week ended Friday. At the same time, FCBs pulled $2 billion out of the market pool. They aren’t cooperating with the Fed to the degree necessary to keep the champagne music machine blowing bubbles. Meanwhile banks built up their cash at a furious pace, sending reserves at the Fed skyrocketing to an all time record while sucking cash out of the economy. Since the beginning of February, as fast as the Fed has pumped money into the system, the banks have pulled the cash out twice as fast. I suspect that this trend can’t continue for much longer without causing a big crack in the markets.
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