Saturday, August 01, 2009

Reserve Bank Credit Dropping are Higher Interest Rates on the Near Term Horizon? (Graph)

Reserve Bank Credit is peaking. Reserve credit is down from the peak of $2,236 billions during December, 2008, the secondary top at $2,165 billions during May, 2009. The current reading is $2,010 billions.

This series should be watched closely. The current drop in the dollar could force the Federal Reserve to continue draining reserves from the system to protect the dollar from an all out free fall.

This will likely lead to an increase in long term interest rates. However, it is time to start watching the two year treasury security closely.

Note: Reserve Bank credit is the sum of securities held outright, repurchase agreements, term auction credit, other loans, net portfolio holdings of Commercial Paper Funding Facility LLC, net portfolio holdings of LLCs funded through the Money Market Investor Funding Facility, net portfolio holdings of Maiden Lane LLC, net portfolio holdings of Maiden Lane II LLC, net portfolio holdings of Maiden Lane III LLC, float, central bank liquidity swaps, and other Federal Reserve assets.
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