Bank reserves hit record high

I caught a very interesting post on the Zero Hedge blog the other day. Scary, but interesting. Blogger Tyler Durden pointed out that that “the Fed's balance sheet hit a fresh all time high of $2.55 trillion, primarily as a function of increasing Treasury holdings.”

Anyone that is paying attention can see that the Fed’s holdings are ballooning rapidly. I think this will lead to a period of hyperinflation soon that will have serious ramifications for all of us.

As Durden pointed out:

“This week, the Not adding today's $7.2 billion POMO to the total holdings, the Fed's total Treasury holdings increased by $22.8 billion W/W, even as MBS posted their first decline in two weeks now that repurchases have materially slowed down as mortgage rates are substantially higher than at the start of QE Lite. This means that net of today's monetization, the Fed owns 7.2% more Treasurys than even the adjusted Chinese holdings of $1.16 trillion.”

Add to this another $1,296 billion in excess reserves and another $116.1 billion in “other assets” and we may have to redefine our concept of too big to fail. And, if we’re not careful, other things will get redefined as well.

Cartoon Credit.

Banks are not lending in this environment, not when they can invest the millions they get from the government (for almost nothing) into a stock market that is rocketing skyward like there’s no end to the demand. Even a minor return on their money is worth millions to the banks. Much more than they could get from lending it out to small business owners or first time home buyers.

The government is not pursuing a wise strategy. Eventually, it will catch up to them, and to all of us. I’ll tell you more about why I believe that in my next post.