I don’t normally read reports from the Federal Reserve Bank, but George Ure posted an item at his site that compelled me to take a look. If I understand Table 2 correctly here, the amount of non-borrowed cash the banks have on hand to cover its required reserves is a negative number!
Reserves of depository institutions (in millions) Date Total Nonborrowed Required Dec. 5 44359 44160 42536 Dec. 19 38676 34843 37507 Jan. 2 46731 11424 44349 Jan. 16 39989 -1387 38278
According to the Fed’s historical data, this hasn’t happened in the nearly 50 years for which numbers are available. In fact, it’s rare to find a month since 1959 in which the difference between the total reserves of the banks in the Federal Reserve system and their non-borrowed reserves is greater than about 7 or 8 percent.
In other words, for nearly all of the last 50 years, our banks have had 95%-plus of their required cash reserves on hand. And suddenly, over the last six weeks, those reserves have vanished.
My economics degree hasn’t done much for me since I graduated from college, but I don’t need it to see that something very big is happening.