The numbers I reported from the Fed two weeks ago have gotten worse. The figures were so different from those recorded since the Fed began compiling them in 1959 that I wondered if we were seeing an anomaly of historic proportions, or even whether someone had made a colossal math error.
The new report on reserves held by depository banks in the Federal Reserve system appears to confirm that our banking system is now being kept afloat entirely with borrowed money.
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 39987 -1390 38276 Jan. 30 47966 -2424 46506
To repeat the point I made earlier, according to the Fed’s historical data, this has never happened in the nearly 50 years for which figures 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 eight weeks, those reserves have vanished.
What’s happening? I don’t know — but it’s historic, and that means we should be paying attention.