LESSON 1 / 4 · 7 MIN
Where the money lives
Name the boxes of the Fed's balance sheet and what moves each one.
When the Fed buys a bond, it pays with money that did not exist before. That money does not vanish: it ends up in one of a few boxes on the liability side of the Fed's balance sheet. Following those boxes is what 'reading liquidity' means.
| Box | What it is | When it grows… |
|---|---|---|
| Currency | Cash in circulation | Grows slowly with the economy; it does not move with the liquidity cycle |
| Reserves | Banks' accounts at the Fed | Banks have more cushion |
| TGA | The Treasury's account at the Fed | Money leaves the banking system |
| Reverse repo (RRP) | Cash that money market funds park overnight at the Fed | Idle cash builds up outside the banks |
| Other | Other liabilities and capital | Barely moves with the cycle |
Key idea
The total only changes when the Fed buys or lets bonds mature. Everything else is money moving from one box to another. If the TGA grows by $100 billion and the balance sheet does not change, another box — usually reserves — shrank by $100 billion.
Tip
Each box is shown on /net-liquidity with its percentile over the last three years, not eleven. The system before the 2020 money printing does not look like today's, so comparing with it misleads.
On the site · /net-liquidity
Open /net-liquidity and find 'Where the money is today': the balance sheet split into its boxes.
Open it on the site →Check yourself
The Fed's balance sheet is flat, but the TGA rose $80 billion this week. What probably happened?