Central Bank Balance Sheets: U.S., Eurozone, Japan

This page is created to monitor the balance sheet of the U.S., Eurozone and Japan.

There is a strong correlation between the price of gold and the expansion of the total sum of all central bank balance sheets in the world.

ECB = blue

U.S. Federal Reserve = red

Bank of Japan = green

(The Chinese balance sheet is not included in this graph as it is not available on FRED)

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Status on the CRB Index

Just recently, sentiment in the commodity market has been positive. Capacity utilization improved, the CRB index started to move upwards, chances on QE3 are improving, the dollar index moves into a top formation. In this article I will discuss the prospects in each sector of the CRB index.

On Tuesday 17 July 2012 the capacity utilization rate came in at 78.9%, up from 78.7% the previous month. As I noted here, the capacity utilization rate is a leading indicator for inflation. This inflation will start to be visible next year as there is a lag between the capacity utilization rate and commodity prices.

The different sectors in the CRB index composition are: petroleum, agriculture, metals and natural gas. I will analyse them one by one in this article.

Chart 1: CRB Index

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ECB Overnight Deposits Drop by more than Half

As I already predicted in this article, the ECB overnight deposit dropped. It didn't drop by a bit, it dropped  in HALF and it's not a glitch.

Now where will this 500 Billion Euro go, I wonder. I'll keep you posted, stay tuned.

They could go to: bonds, gold, real estate, land, overseas currencies.

500 billion euro is not a little bit of money, it is huge. The financial stimulus in 2008 was comparable to this 500 billion euro. You can buy a lot with this money. Deutsche Bank is only 20 billion euro in market cap. The whole silver market is only worth 20 billion euro. Even Citigroup is worth only 50 billion euro.

So I expect something big to happen in the equity markets and especially in the precious metals market.

Chart 1: ECB overnight deposits

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ECB Rate Cut and its Effect on Euribor

On Thursday 5 July 2012, the ECB cut its main refinancing rate to 0.75% and its deposit rates to 0%. After LTRO I and LTRO II, we have another stimulus to supply credit to the markets.

In my previous article on LTRO I, I noted that the Euribor was manipulated lower to make it easy to lend (Chart 1). 

Chart 1: 3 Month Euribor

But it wasn't working out for the markets, because all the money was kept at the ECB deposit facility (Chart 2).

Chart 2: ECB Deposit Facility

Then, we got the interest rate cut of the ECB, and that lowered the Euribor another step from 0.64% to 0.55% as witnessed on Chart 1 (see the little spike downwards).

So what does all this mean for you? Read the analysis here.

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How Likely is QE3? 70% likely.

Ben Bernanke has been saving his ammo in the past months. Each time the fed meeting was held, markets were hoping for QE3, but they didn't receive any. This is evidence by the U.S. federal reserve balance sheet on Chart 1.

Chart 1: U.S. Federal Reserve Balance Sheet

Today, we have passed several months and we already see that the economy is starting to deteriorate. Not only in Europe and the emerging markets, but especially in the United States. In this article I will focus on the key macroeconomic data in the U.S.

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ECB's LTRO I and LTRO II didn't work

On Zerohedge, the article of the ECB deposit facility sparked my attention. Apparently, banks are depositing their money into the ECB at an alarming rate (Chart 1).

Since the crisis of 2008, this deposit facility had risen a lot (250 billion euro), but has only recently skyrocketed to more than 800 billion euro.

This deposit facility at the ECB is a macro-economic indicator of market tension residing at the European banks. It is seen as a "safe haven" during economic turmoil in Europe. The higher this ECB deposit facility rises, the more banks favour the safety of the ECB deposit over higher returns in the interbank market. It shows that banks aren't lending to each other and also shows that appetite for European government bonds is declining.

Even though banks borrowed 489 billion euro (LTRO I) and 529.5 billion euros (LTRO II) in loans (at 1% lending rate) from the ECB, a lot of that money just went back into the ECB deposit facility at 0.25%. This means that banks are actually opting to lose money due to fear of a eurozone break-up.

To read the full analysis on this matter go to: The European Central Bank's LTRO Isn't Working Out.

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