is this adjusted for inflation over the years? 1 billion dollars in 1920 was quite different than today.

Is that a projected graph over to the right hand side? Or are banks literally borrowing more than a hundred and fifty billion dollars from the Fed??

Regardless of inflation the point is clear.

Is this for real real, though? It look almost fake...

There are no levels of borrowing anywhere close to what began in December, even within a recent, comparable period. Remarkable, if in fact accurate.

I think even with inflation taken into account the amounts from the past are no where near the current high.

Before all the posts arguing about inflation adjustment, alignment of the recession data, relation to GDP, etc let me just say that what is most important here is the TREND. This is a very new, very large change in our nation's banking practices. We're entering untested financial waters here. While it may not be clear what exactly the outcome will be, there is a strong chance that unkowns to the system could disrupt things badly. And there are many unknowns with the current global credit market and CDOs/CDSes. Many economists agree there is a realistic risk of a global depression as these derivatives unwind.

What goes up...

A related article:

US Banks Quietly Borrow Massive Amounts

Umm... seems pretty high at the end there. I shouldn't have bought a house, I should have bought a bunker!

holy bejeesus.

Interesting read about the federal funds rate: [en.wikipedia.org]

The bigger question is, where is all the money they're borrowing coming from? Is the Treasury simply printing more?

In which case, hyper-inflation, here we come.

These are NOT projections, or extrapolations, or some other sort of cheese. The last data point is from June 2008.

Here's the raw data:
[research.stlouisfed.org]

This really is rather frightening.

I'm an economist. This is both accurate and probably about as dire as most people would assume that it is. A couple tips for the foreseeable future:

1. Take your money out of small, regional banks and credit unions. Put it into large national or international banks with FDIC insurance. If you have more than $100k in a single financial institution, you need to start splitting it up among various institutions, and putting it into long-term jumbo CDs. Then again, if you have more than $100k, you probably already knew that.
2. Pay down your debts. Interest rates in the US are going to go up to levels exceeding any in living memory. Think 50%+.

Part of it comes from the eagerness of the government to loan money to a hugely overpopulated banking system. They're giving the money to the wrong people, in my opinion.

It is like getting a cash advance on your credit card to pay the minimum balance.

@Carso: Seniors on fixed income will be the ones who have over the FDIC limits and be the most hurt by this debacle.

Rough calculation based on 1927 price of a gallon of milk (.45cents) and comparing to what I am paying now ($3.50) that makes a roughly 12.8% inflation rate.

So in 1920 dollars, 1 billion would = about 12.8 billion in today's dollars. Thus the banks are massively out borrowing more then they ever did in the past.

@savvy999: Where is it that you suppose money is created? Money creation and regulation of supplies should only be handled by the federal government and not the private banking industry. Banks loan money under a fractional reserve system. They only have to possess 10% of the money they lend out. If our federal government creates money to serve a specified need, then it is not in and of itself inflationary. What private banks just pulled off on the other hand was extremely inflationary. To read more if you're interested in this topic, visit the American Monetary Institutes website:

[www.monetary.org]

Not sure how much of a difference it makes, but if you look at the weekly borrowing, the numbers are way down: [research.stlouisfed.org]

Course, they've already borrowed all the money, so the damage is done.

@Carso: Are you saying that typical credit union accounts (say, under $10,000 balance) insured by the NCUA will not be safe?

@Lars: I know where money comes from, but the issue is (and what the graph is showing) is the unstable rate right now at which it is being produced/created (and then lent to the banks).

The Treasury is writing checks to the banks that it itself cannot cash... unless it prints more money. Drastically increasing the money supply (fractionally or not) is hyperinflation. [en.wikipedia.org]

@privateer: In terms of what's "safe" and "not safe", it's hard to explicitly say that the NCUA is less or more secure as an insurer than the FDIC. If I had to have my money in one or the other, I'd have it covered by the FDIC over the NCUA, but the choice is not necessarily cut and dry. It's worth pointing out that in 70+ years since the FDIC was established, and in the 38+ years since the NCUA was established, no insured deposits have ever -not- returned 100 cents on the dollar - indicating a lengthy history of trust and security. But the times they are a-changing, as this graph highlights for us.

For those of you confused by the FDIC rules regarding maximum quantity of insured deposits (savings, checking, and CD accounts) and the maximum quantity of IRA-type accounts, feel free to do some research. Here's a site with some accurate (though poorly formatted) basic information.

[www.safemoneyplaces.com]

Which makes the fact that they stopped publishing the M3 "Money Supply" data some many months ago.

Makes one wonder why they did that.

Also, be aware that it is possible to have FDIC insure more than $100k in deposits (up to $50 million per individual, actually) using a system called CDARS. If you are in the category of individuals with large deposits that prefers to keep all their money in a single institution, I would strongly recommend retaining the services of a CFP or CPA in order to obtain CDARS status for your deposit.

@Carso: Hmm. But aren't large banks like WaMu more likely to have taken on bad mortgage debt than smaller credit unions? I ask because I'm thinking of moving my money out of WaMu and into a credit union, because it seems likely WaMu will go under. I'm under the FDIC limit, so I'd be made whole, but I don't want to have to wait eight weeks to get my money.

I'm not sure I understand. Why are the banks borrowing money from the federal government? The government should not provide these services as they are akin to entitlements. What rates are they getting? If they can get those rates, why can't I? Aren't we in the free market?

/sarcasm

There is something wrong with the graphing software. If you switch to a log scale you see that the number while still huge is somewhere between 5-10 billion dollars.

[research.stlouisfed.org]][id]=BORROW&s[1][transformation]=log&s[1][scale]=Left&s[1][range]=Max&s[1][cosd]=1919-01-01&s[1][coed]=2008-06-01&s[1][line_color]=%230000FF

So this really isn't that bad. 150 billion would jump the inflation rate overnight. 5-10 billion not so much.

@Techguy1138: Well that link didn't work. Just click on the log option on that graph to see what is going on.

@Techguy1138: Yes, but the scale changes to "natural log of billions of dollars." ln(150)=5, roughly.

@Orv: THe unfortunate reality is that large banks are quite intentionally "fail-proof."

Meaning, they can act as stupid as they want, pay their executives as much as they want, invest in dumb things (sub-prime paper), etc. When the sh*t hits the fan, those free market capitalists who complain all day about "entitlements" and "personal responsibility" and "no government handouts," will say "we can't let them fail, it would destabilize our banking system" and give them billions of dollars, so they can do it all over again.

Ehh, this may be a dumb question, but does these figures include investment banks which have recently been extended the privilege of borrowing against the Fed, or are these strictly traditional banks?

@ARP:

goddammit, why are you asking so many difficult questions when there are terrorists out there who want to destroy our american way of living!

Oh wait, we did that to ourselves? Shit.

@Orv: You are right.
Reading is fundamental.
That is just as bad as it looks.

@savvy999: My exact point is that the Treasury should be able to cash those checks it's writing. That the Federal Government should alone have that power. The banks that sent out bad mortgages already created all this money and now the Federal Government is just backing the value of that credit. That is inflationary, but it was done by private banks (without good government oversight), not our government. The alternative is to have the whole system collapse, which is far worse than the inflationary effect. Of course, if we just do the sensible thing and stop letting private interests that are not democratically accountable creating money, we could avoid these problems all together.
@holocron: You raise an excellent point. The lack of transparency on the part of the Fed is upsetting. The M3 statistics are likely unpublished now as they are provide good information to those unhappy with our current monetary policy. Ralph Nader and the AMI are both calling for the M3 to be published again.

@Orv: In truth, comparing the amount of "bad debt" banks currently have is one of the major factors rolled into ranking mechanisms, including CAMELS. I feel as though it would be inappropriate for me to comment on the reliability of any particular bank in a public forum, but please feel free to check out what the experts have to say for yourself:

[www.fdic.gov]

To answer your question more directly, credit unions are not immune from taking on bad debt, and in some cases would be more likely to do so than larger banks (like WaMu). Typically, in simulated pandemic bank failure scenarios, credit unions fail first.

@ARP: That didn't stop IndyMac from failing.

@Carso: Thanks, I'll check out some of those tools before I make a decision. At least that way I won't be in the dark.

Corso:

Can I ask you to asplain something for me?

You said:

Pay down your debts. Interest rates in the US are going to go up to levels exceeding any in living memory. Think 50%+.

I understand that if there are high interest rates, that new debt is bad. But what if I owe you $100,000 at 6 percent? That's pretty good, for me, if prevailing rates are 20 percent. If I need to buy a car, maybe I can pay cash, instead of having to borrow, because I didn't pay you off?

And if there's inflation, then isn't debt GOOD? That $100,000 that I owe you is worth less and less, right? The more inflation, the more fucked YOU are (as the lender), yes?

This isn't a challenge. I'm just trying to figure this out.

@Hawkins: I think your math is good, but the trade off is that having debt limits your financial flexibility. If you pay off your debt, that's one less obligation to meet should you lose your job.

Ok - everyone take a step back, breathe, and calm down. To show the increase in borrowing more accurately this data needs to be displayed as a semi-log graph, so this Fed graph would be more accurate. So, we're still in rough shape, but nowhere near as bad as the posted graph makes it look. No need to stock the fallout shelter quite yet.
The commenters over on Digg were having an ongoing debate for why this is important last time I checked.

@Hawkins: We're moving into theory territory here, and I'm not sure it's my place to start holding econ lectures on the Consumerist forums, so I will explain only briefly. The answer to your question is a complicated one, but it can be boiled down thusly:

Inflation typically causes interest rates to increase. Having pre-existing debt is "good" for the debtor when inflation (and interest rates) start to go up. But having cash on hand is also "good" for the investor when interest rates go up. So while it feels like it's easier to make your mortgage payments in an inflationary economy, it should also feel like you're not making as much money as your neighbor who took his $100k and put it into high-yield CDs when interest rates shot up. The next effect on you (the mortgage payee) would be no change in your perception of your actual wealth.

@jtheletter: I don't see a trend. I see a vertical line.

Another useful link: [research.stlouisfed.org]

Notes from the "raw data" link posted above:

"Data from 2003-01-01 to 2007-11-01 include primary, secondary, and seasonal credit. Data from 2007-12-01 to 2008-02-01 include primary, secondary, seasonal, and term auction credit. Data from 2008-03-01 forward include primary, secondary, seasonal credit, primary dealer credit facility, other credit extensions, and term auction credit."

So while that graph is pretty terrifying, it sounds like the two biggest jumps coincide with the reporting of additional data as well, so without those same figures for all time periods involved the comparison is not completely accurate. Here's to hoping that those additions make up most of the massive jump. Please, someone, say that's the case?

@nequam: Is that a statistics joke? Cut me some semantic slack. The line is not vertical and represents a number of months, it is not instantaneous. And if you look at a lot of the other graphs of various financial in our economy, normalized medium home prices, loan defaults, derivatives contracts, national deficit, national debt, etc then guess what you start to see? A TREND. All of these graphs are going exponential in the last few years. It should tell you something about what's going on and how far from the norm we are right now.

Good job posting a graph without explaining it. They changed the way banks borrow money, which is why the numbers went up. Please stop posting FUD.

@Carso: My freaking credit union wouldn't even give me a $3500 loan using a car (whose KBB value was higher) as collateral. Brutal, man.

@yaos: Yes, they changed the way banks borrow money. That's the point. They changed it so that they could hand out far more money than they ever have in the past. They lend this money at a discount, so what we have here is a huge expansion of a federal subsidy of the banking sector. This is an unprecedented change with consequences that are largely unknown.

@me and the sysop: It sucks, but I wouldn't freak out. Banks are buttoned down really tight right now. My guess is that they loosen up their lending rules a bit after a few quarters.