It has been a while since I wrote about the Fed's balance sheet. On Nov 6 I noted that reserve balances with the Fed were an astonishing $493,633 million. Somewhat earlier, on Oct 21, I noted that the three-month T-bill rate had risen above 1%.
I expected a month ago that the situation would improve, but there is little evidence in the numbers that it has. Today, Nov 19, short-term interest rates were again extremely low. The three-month rate was a mere .07 percent, which was actually lower than the one-month rate of .09%. Still, that beats the .03% of Sept 17, 2008. People are interested only in safety and do not care about return.
Reserve balances with the Fed have increased further, to $592,144 million for the week ended Nov 13, 2008. How high will they go? I have no idea.
Meanwhile the stock market continued to sink, with the S&P 500 Index ending at 806.58, its lowest level since March 12, 2003. How low will it go? Again, I have no idea. It is an interesting time to be an economist, but not an enjoyable time to be approaching retirement.
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