Shocking charts: Banking reserves & borrowing from the Fed!

[Stretch002]

Has anyone seen these charts? This looks incredibly ominous to me. We have discussed at length whether the FDIC and other credit union related entities can repay the insured deposits with their reserves. It is obvious they cannot. If we have massive bank failures, and the FDIC cannot cover, does the government then step in and monetize this obligation? If so, won’t that lead to massive inflation?
As a person with several hundreds of thousands of dollars socked away for the eventual purchase of a home, I am very nervous. Despite the fact that real estate is in decline, does it make sense to go ahead and use the cash to buy a house? Should I be buying Gold as a hedge despite its gains over the past few years? It looks very bubbly to me and the price seems fairly volatile if I need to use the cash in the next year or two. What about foreign currencies? They all seem to be in the same position we are in. What to do to keep my money safe? What would you do during this turbulent time?

[Starving Steve]

Re: Shocking charts: Banking reserves & borrowing from the Fed!

I am posting as a lay-person; I am not a trained economist.

But my understanding is that if a bank becomes insolvent, the money supply actually shrinks because they can not cover their obligations. The FDIC will move in to take-over the bank and pay the insured obligations. This is not inflationary because the FDIC just replaces money that is lost by the bank.

If the FDIC runs out of money, the Fed or the US Treasury bails them out. If the Treasury or the Fed runs out of money, the Fed can print money which may not be inflationary IF the Fed prints only enough money to cover the lost insured deposits covered by the FDIC.

If the whole economy crashes--- the way it has been doing in recent weeks--- then things really become dicey. Then there may be more pressures upon the Fed to print money.

Yes, gold looks very bubbly now. So does oil.

But Helicopter-Ben is at the Fed, and you know what that means. We have already witnessed one drop of money ( the stimulus cheques ) and there may be more on the way.... And that is precisely why there is a bid to gold at these absurd $900-$1000 price levels.

I suspect Helicopter Ben will be replaced by Paul Volker if Obama is elected. Meanwhile, this nut appointed by Bush could ignite an Argentine-style hyperinflation in his last year at the Fed.

My recommendation is to sit with the cash at these price levels for gold and to take your chances. Late-comers to the gold market are seldom rewarded.

Maybe Ben Bernankee will be prudent.... Who knows?

And one more thing working in your favour with cash: Homes are going down in price. What does it matter if inflation is accelerating, if you can buy homes at fire-sale prices? In other words, time is on your side. Those trying to sell homes now face the burden of increasing carrying-costs on unsold homes, so they can not hold out for long.

[c1ue]

Re: Shocking charts: Banking reserves & borrowing from the Fed!

Stretch,

Welcome to iTulip.

There has been an extended discussion on this information - basically that with the TAF and what not, that banks have no reason to retain lots of non-borrowed reserves.

This is not to say that there are no major problems, but rather that this information is a symptom rather than a cause.

Please dig into the public area under financials, I believe.