WEEKLY FED BALANCE SHEET REVIEW. DOMESTIC CONTRACTION, GLOBAL BOOM
. Federal Reserve: "Factors Affecting Reserve Balances", March 21

- Fed's Treasuries holdings: $773.4bn (-$2.9bn)
- Other central banks' Treasuries holdings: $1,217.4bn (+$3.7bn) (*)
- Other central banks' agency securities: $658.4bn (+$12.4bn) (*)
- Mackinlay's Global Dollar Liquidity Index: $2,649.2bn (+$13.2bn)

(*) Off-balance-sheet items.
agustin_mackinlay@yahoo.com
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The global liquidity boom, as defined by an annual increase of 10% or more in our Global Dollar Liquidity Index, is about to enter its 54th month. This is unprecedented. Already in 2007, foreign central banks have added almost $100bn in Treasury and agency securities. Remarkably, the global liquidity boom takes place in the midst of a rather sharp contraction of domestic liquidity — no doubt courtesy of the inverted yield curve. The stock of Treasuries held by the Federal Reserve, a proxy for the monetary base, is growing at a 2.2% annual rate, the weakest since January 2001.

Bank reserves held by the Fed appear to be trending down, a reflection of both sophisticated reserve management tools and lower levels of credit demand. The dollar, meanwhile, fails to rally despite its growing "domestic" scarcity. One can only wonder what will happen to the greenback as the yield curve normalizes and domestic liquidity is replentished.