I’ve just stumbled across this commentary on Federal Reserve lending to banks, whose centerpiece is a chart that freaked me right the hell out. (The chart is from the Federal Reserve Bank of St. Louis, and can be seen also here, under the title “BORROW, Total Borrowings of Depository Institutions from the Federal Reserve.”)
The GoldMoney commentary includes this passage:
It’s not much of an exaggeration to say that I had trouble picking my jaw up off the floor because my hands were shaking so badly. Am I right to find this horrifying, or is the excrement not really on a trajectory toward the rotary air mover? Obviously this GoldMoney fellow, eagerly pushing gold and silver investments, is heavily invested in spreading fears about the banking system.
I haven’t the knowledge and understanding of the banking system to assess this properly. Those of you who do, what say you?
I’m no expert, but that graph represents two big events: the credit crisis which began in August of 2007, and the introduction of new loan programs at the Fed for securities dealers. Between the Primary Dealers Credit Facility (one-day loans) and the Term Auction Facility (weekly auctions of short-term Treasury Securities), the Fed has pumped about $100 billion of liquid funds into the securities market that was never reflected in the “borrowings” data before. I don’t really understand why the Fed is lumping together these loans with those that they’ve got so much historical data on.