Our first chart this week comes from a blogger who does fantastic research: Trader Mark. This week Mark flagged a chart of federal revenues versus outlays. If your pre-schooler is taking any business courses, they will immediately recognize the problem.

Bank Non-Borrowed Excess ReservesClick Image for Larger View

This is an exclusive from Bob English and friends at Precision Capital Management: “US banks are required to keep money in reserve based on requirements set by the Federal Reserve (the Fed).  Anything beyond that is considered excess reserves and is generally held on deposit with the Fed.  Since last September, with the myriad Fed programs initiated, excess reserves have exploded (and along with it the Monetary Base, which includes excess reserves).  Some of these excess reserves are borrowed–for instance, the Fed may lend money to a bank based on collateral posted by the bank to the Fed, which could be a Treasury Security, an Agency Security, or even now a Mortgage Backed Security.  Eventually, this money must be repaid and the collateral is returned to the bank by the Fed.  However, banks also maintain non-borrowed excess reserves, which is money on deposit with the Fed that they can use for any purpose without the need to repay it.  This money has come largely from permanent open market operations, whereby the Fed purchases Treasury, Agency and Mortgage Backed Securities from banks and deposits the proceeds from the sale in the banks’ accounts at the Fed.  As is demonstrated by the thick green line, non-borrowed excess reserves have increased dramatically over the past year and appear to be correlated with movements in the stock market.  We will soon be posting a more detailed analysis of the ramifications of this correlation on our website.” (Click the image above for a larger view.)

Daily Baltic Dry Index

When the economy is strong, goods are shipped overseas. A look at the Daily Baltic Dry Index can help provide perspective regarding global economic health. (Source: The Chart Store; Hat Tip: The Big Picture)