Credit machine not yet fixed
Source: http://www.investmentpostcards.com/2009/05/26/credit-machine-not-yet-fixed/Posted on Tuesday, May 26th, 2009 | In Market Commentary
Although the rates at which banks lend to each other have eased considerably from their peaks, banks have cut back significantly on the amount of money they are actually lending.
Source: Gluskin Sheff
The fact that the money multiplier is breaking down can be seen from in the US Depository Institutions Aggregate Excess Reserves – which are zero in a normal credit environment – continuing to skyrocket far in excess of the amount that banks need to keep on deposit to meet their reserve requirements. The excess reserves now amount to a record $877 billion and reflect the uncertainty about banks’ balance sheets in view of the fact that the value of some assets is not known.
US Aggregate Depository Institutions Excess Reserves
Source: Fullermoney
A peak in the excess reserves should coincide with the global credit system returning to normal levels and liquidity starting to move freely again.
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 About Prieur du Plessis (http://www.investmentpostcards.com)
Prieur du Plessis has 25 years’ experience in professional investment research and portfolio management. More than 1,000 of his articles on investment-related topics have been published in various regular newspaper, journal and Internet columns. He has also published a book, Financial Basics: Investment. Prieur is chief executive and principal shareholder of South African-based Plexus Asset Management, which he founded in 1995. The group conducts investment management, investment consulting, private equity and real estate activities in South Africa and other African countries. Plexus is the South African partner of John Mauldin, author of the Thoughts from the Frontline e-letter, and also has an exclusive licensing agreement with California-based Research Affiliates for managing and distributing its enhanced Fundamental IndexTM methodology in the Pan-African area. Prieur is 52 years old and lives with his wife, television producer and presenter Isabel Verwey, and two children in Cape Town, South Africa. His recreational activities include long-distance running, motor cycling, traveling and reading. |
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