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Other Central Banks Impacting U.S. Money Supply

BySober Look
Published 07/14/2013, 01:45 AM
Updated 07/09/2023, 06:31 AM

When the Fed prints reserves by buying MBS and Treasuries with money that did not exist previously, this increases bank deposits (liabilities) and cash assets pretty much dollar for dollar. I have run charts showing this relationship, but something went wrong beginning in January.
loan sto deposits
That something was the breakdown in Treasuries holdings, as eurozone banks began to unwind the LTRO trade at the first opportunity in January.
ECB And Treasuries
The Fed is not the only actor in this game. All the major central banks conduct operations with the Fed’s 21 Primary Dealers. U.S. money supply data represents not just the U.S., and is a pretty big slice of the whole world which reflects other central bank policies and the flows of capital between nations and banking systems.

Treasuries were liquidated to pay down the LTRO. At the same time, we saw that echo in U.S. commercial bank repo lending and other securities lending to nonbanks, extinguishing the offsetting deposits.
Loans For Securties
The forced March liquidation of leveraged holdings by big Chinese shadow institutions also showed up here. The BoE has also been running tighter policy.

So the Fed and BoJ are fighting an uphill battle to keep money supply inflating. U.S. money supply would still be increasing dollar for dollar with the Fed’s purchases, but their friends - the other central banks - are no longer cooperating.

Guest post by Lee Adler of The Wall Street Examiner

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