Central Banks have grown their balance sheets significantly in the past 20 years and almost exponentially since the 2008 financial crisis. Here’s how much the balance sheets of the Bank of Japan, the Swiss National Bank, the Federal Reserve and the European Central Bank have grown in the 21st century,
Bank of Japan
Total assets: 540.8036 trillion Yen (JPY) = 4.93 trillion US Dollars (USD)
As of date: May 1, 2018
Asset size as percentage of GDP: 101% of GDP
Interesting information: The Bank of Japan has a target to buy 6 trillion Yen ($54 billion) worth of exchange traded funds a year. It now holds almost 82% of all ETFs in Japan and is indirectly the largest shareholder in many large Japanese companies, almost about half of listed companies in Japan.
From the Federal Reserve’s definition of Money Velocity and Money Supply,
The velocity of money is the frequency at which one unit of currency is used to purchase domestically- produced goods and services within a given time period. In other words, it is the number of times one dollar is spent to buy goods and services per unit of time. If the velocity of money is increasing, then more transactions are occurring between individuals in an economy. Continue reading “The curious case of low U.S. money velocity”
Banks in the US can hold excess reserves with the Federal Reserve. In 2008, as part of the Emergency Economic Stabilization Act of 2008 it was mandated that interest would be paid on reserve balances held with the Federal Reserve. What is of significance is the interest rate on excess reserves.
Since 2015, the Federal Reserve has set the interest rate on excess reserves equal to the top of the target range for the federal funds rate. Why is this important? Look at the graphs below.
Goldman Sachs computer model warns a bear market is near, but the firm’s analysts don’t believe it (read here). So, if a bear market arrives – they were right (well their computer model was), no bear market – they were still right.
JP Morgan has said investors are ‘overreacting’ and investors should buy the market dip for a big rally ahead (read here). How big? 13%. Which would just about take us back to the highs the market hit at the end of January. Will they do as they say? Who knows.
Meanwhile, 10-year US bond yields have fallen 12 bps (to 2.78%) in the past week since the 0.25% Federal Funds rate target increase. As the Federal Reserve pares back its bond holdings, the US government is bringing more to market, yet yields have been falling.