Where The Deposits Are Going



With the down-sloping economy wrought with an inverted yield curve, bank runs, US bailouts, and an unprecedented diminishing of deposits within the retail and commercial banking systems, people are wondering where the money is going. There currently is an excess supply of cash looking for short term investments. Deposits at small banks fell $119 Bn to $5.46 Tn in the week ended March 15 with the liquidation of SVB and Signature. The Federal Deposit Insurance Corporation (FDIC) has retained BlackRock Inc unit Financial Market Advisory to sell the securities portfolios it kept in receivership after the collapse of Signature Bank and Silicon Valley Bank. The new owners of SVB and Signature are now First Citizen’s Bank and Flagstar.

Borrowing at small banks, defined as all but the biggest 25 commercial US banks, increased by $253 Bn to a record $669.6 Bn, the Fed’s weekly data showed. Since the ending of Bretton Woods and our gold standard, caused by America’s excessive growing debt to fund the Vietnam war, CPI has grown from 40 to 300. That means roughly a 600% increase in prices since 1971. Inflation in 1971 was 3.3% and we’re now at 6%. That’s a 73% increase from the brink of one of the worst times in the US economy.

Americans are now readjusting and putting their money into what’s called MMFs. Money Market Funds. Money Market Funds invest into cash-like, or liquid, instruments. These include Treasury bills — US government securities that mature in a year or less — as well as repo agreements, a type of short-term lending secured by bonds that the borrower owns. Some also invest in corporate IOUs known as commercial paper. However, a massive chunk of the total appears to be simply warehoused in the Fed’s overnight reverse repo facility rather than finding its way back into the economy.

Short for repurchasing agreement, the repo market is essentially a two-way intersection, with cash on one side and Treasury securities on the other. They’re both trying to get to the other side.

One firm sells securities to a second institution and agrees to purchase back those assets for a higher price by a certain date, typically overnight. The contract those two parties draw up is known as a repo. Essentially, companies are using short term loans to fund activities due to uncertain times ahead. The BGCR and the SOFR are rates used in the repo market. Because these are collateralized loans they tend to be lower than the Federal Funds Rate most of the time. Some are investing in futures on short-term Treasury debt. With the federal funds rate projected to drop by the end of a year, this is another viable option. Suffice to say there are solutions within the confines of a declining economy and a methodology to protecting your assets and hedge any losses.

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