Thursday, March 19, 2009
For almost three years now over at the companion investment website Iacono Research, in the section of the weekly update to subscribers titled "Short-Term Interest Rates and the Federal Reserve", there has been a handy little graphic showing the implied probabilities for short-term lending rates based on Fed funds futures contracts.
But, since Ben Bernanke lowered the overnight lending rate to the freakishly low level of between 0.0 and 0.25 percent back in December and, more recently, promised to keep it there for an extended period of time - until the economy recovers or until he is asked to leave, whichever comes first - the charts have just kind of sat there, week after week, pegged to a near-100 percent probability of "no change" to short-term rates.
Obviously, this hasn't provided a whole lot of value to subscribers lately.
Having reached the "zero-bound" in traditional monetary policy, all the real central bank action has since moved to the Fed's balance sheet where, if yesterday's announcement is any indication, the sky is now the limit.
As a result, in an effort to provide something more useful in this section in the future, the courage and the will were finally summoned to trudge through the historical data for the Federal Reserve's H.4.1 report and what you see below is the result.
It wasn't easy.
No doubt you've seen similar versions of this elsewhere (a few have crossed my computer screen in recent months) and, having compiled the data and generated this first chart, there are already a number of changes that are in the works to make for a better presentation of what all this money and credit is and to whom it's been extended.
It's a fascinating thing to look at, particularly when you compare the more recent data to what shows up back before summer of last year. It was a virtual flat-line of inactivity on the Fed's balance sheet up until Lehman Brothers went face first into the pavement last September and, since then, there's been a whirlwind of activity.
Naturally, what exactly all these individual items are and why they're grouped the way they are isn't obvious the first time through. For example, both mortgage backed securities and agency debt are included in that big blue bottom area titled "Securities held outright". Since they're going to be printing up money to buy another trillion dollars or so of these, they should probably be broken out into separate items.
Also, there's about 11 billion dollars in gold stock that probably doesn't deserve its own line item. Further, a couple of the items in "Other Loans" look like they deserve their own category, particularly the one labeled "Credit extended to American International Group, Inc."
Consider what you see above a "first pass" at bringing life to the Fed's H.1.4 reports in these pages and for subscribers at the investment website.
With the total assets expected to grow to anywhere between $3 trillion and $10 trillion (!?) over the next year or so, this should be good fun to watch.
[Note: The image above of Fed chief Ben Bernanke with a wheelbarrow overflowing with freshly printed FRNs comes from the always interesting Jesse's Cafe Americain.]