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Watch This Amazing Chart Show Fed Funds Disappear In A Raging Credit Bubble

This is an excerpt from part 2 of the weekly MacroLiquidity Report for Macroliquidity Pro Trader and Macroliquidity Monthly Investor subscribers (subscriber download links). 

Bank loans and US money supply continue to soar as banks lend more, and cash created by the BoJ and ECB flows into the US markets and US banks. The credit bubble continues to grow in spite of Fannie and Freddy continuing to shrink.

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Bank Lending Bubble Rages On

Bank Lending Bubble Rages On

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What isn’t soaring is Interbank Fed Funds. That market has virtually disappeared. Total interbank Fed Funds and RRPs outstanding have fallen to around $60 billion from $400 billion or more in 2008.

Interbank Fed Funds and RRP

Interbank Fed Funds and RRP

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The Fed has tried to replace that market with its own RRPs, intending that as a tool to raise interest rates when the get around to playing that charade. I keep asking if this is some kind of a joke. If the Fed increases the size of the RRP offerings and raises the interest rate it pays on them, this will lower the banks’ cost of funds. That is supposed to cause them to raise rates? Meanwhile the increased subsidy income that the Fed hands the banks via any increase in the size of this program and the rates on it, and any increase in interest paid on excess reserves (IOER) will come straight out of taxpayers’ pockets. I can’t wait to see how that plays when the mainstream media finally awakens from its stupor and starts reporting on that.

Download this report to see the rest of the charts along with a brief analysis of what last week’s changes in the Fed’s liabilities mean for the markets.

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This report is the August monthly update. Macroliquidity Investor Monthly subscribers, click here to download complete report.

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Lee Adler

I’ve been publishing The Wall Street Examiner and its predecessor since October 2000. I also publish, and was lead analyst for Sure Money Investor. I developed David Stockman's Contra Corner for Mr. Stockman. I’ve had a wide variety of finance related jobs since 1972, including a stint on Wall Street in both analytical and sales capacities. Prior to starting the Wall Street Examiner I worked as a commercial real estate appraiser in Florida for 15 years. I also worked in the residential mortgage and real estate businesses in parts of the 1970s and 80s. I have been charting stocks and markets and doing analytical work since I was a teenager. My perspective is not of the Ivory Tower. It is from having my boots on the ground and in the trenches of the industries that I analyze and write about today. 

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