Total borrowings explode

Saturday, 07 June 2008 13:09
borrowing in the new millenium

Vertical axis: Total borrowings of depository institutions from the Federal Reserve, in $ billions. Horizonatal axis: date in MM-YY format. Data released by St Louis Fed 2008/06/06.

A picture to illustrate how extraordinary the present situation is -- disturbing indeed.

According to the notes released by the St Louis Fed, data prior to 2003-01-01 include adjustment, extended, and seasonal credit. Data from 2003-01-01 to 2007-11-01 include primary, secondary, and seasonal credit. Data from 2007-12-01 to 2008-02-01 include primary, secondary, seasonal, and term auction credit. Data from 2008-03-01 forward include primary, secondary, seasonal credit, primary dealer credit facility, other credit extensions, and term auction credit. But we are looking at orders of magnitude surge in borrowing.

Note that the point corresponding to September 2001 has a date associated with it: 09/01/2001. Perhaps it only means that every month's data are associated with the first day of the month, in which case the extra liquidity pumped into the system after 9/11, but still in September, is part of this data point.

In any case, if you thought 9/11 was something special when it comes to the economy, compare the September 2001 data point with what has been going on for the past several months. A few questions come to mind: who is going to pay interest on all this fiat-currency-denominated debt? What will happen with the currency (USD)? And how to avoid being a casualty in this debtor-creditor relationship? That this is not just domestic business of the world's largest debtor nation is a no-brainer. It seems that the right framework to analyze this situation is not limited to the economy but extends into the politics and geopolitics.

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