Monday, September 27, 2010
Are Reserves Running Off?
I'm not sure if there is anything important going on here. It could just be a blip. However, as you can see in the chart, reserves fell below $1 trillion for the first time since January, and there is a clear downward trend (with a downward blip). The other component of outside money, currency (in the next chart), continues to grow at a steady pace of about 5% per year. If inflation were to increase, this is where it has to come from - reserves are shed by banks as they become relatively less attractive, and currency keeps growing. We need to see more data before attaching more significance to this, but it bears watching.