Bank reserves were $44.6B in January 2006 and $809.0B today. That's an enormous increase, almost a factor of 20. The reserves doubled every month starting in September 2008, as the financial markets crumbled.

In that same time, The money supply M0 (basically, pure cash, plus the reserves) in that time went from $791.6B to $1,680.6B, roughly doubling.

Broader markets of the money supply, by comparison, hardly moved. The M1 and M2 measures (adding checks and money market funds, respectively) went up about 20-25%.

In January 2006, they were $1,380.6B and $6,725.1B. As of June, they were $1,650.0B and $8,370.1B. They've gone up by 20% and 25% respectively.

(These are figures for the US. There are also world money supply figures, but they're ill-defined and easily manipulated.)

The upshot: banks poured money into the Federal Reserve as the stock market collapsed. In January 2006, the amount of reserves were almost identical to the Fed requirement. Today, the requirement is only $57.6B, and the amount on deposit is more than ten times that.

The money supply has never been "mostly" in bank reserves, especially by broader measures. By the narrowest measure, reserves are now just under half. But much more is in reserves than it was a few years ago, by any measure.
Source(s):
http://www.federalreserve.gov/releases/h6/hist/h6hist1.txt
http://www.federalreserve.gov/releases/h3/hist/h3hist1.txt

Asker's Rating:

Permalink | Report