Few people realize the extent of the panic attack that occurred in 2011. The amount of cash deposited in U.S. bank checking accounts increased by $203 billion in the two weeks of July 25 and August 1, 2011. In 2008, when the world as we knew it really did almost end following the Lehman bankruptcy, there was only $160 billion of cash stuffed in banks. There were two events that were the catalysts for the 2011 panic. On July 25, President Obama gave a speech where he stated the U.S. might not be able to pay social security or VA benefits in August if the debt ceiling wasn’t raised. On August 6, S&P downgraded U.S. Treasury debt. It is remarkable that the economy and the market have been as strong as they have been since then, as the banks have not recirculated the cash in the form of strong loan growth. The cash pile has actually continued to increase. There is arguably at least $650 to $700 billion of excess liquidity sitting in checking accounts earning ZERO. When confidence is fully restored – and it is now significantly improving – that cash will be available for consumption and investment. Jeb Terry, Sr. March 28, 2012
The amount of excess cash in M1 is dead money. When this starts to liquidate-i.e. when the 3 month change in the following chart goes negative – we will see a significant pick up in all manner of investment be it durable goods, cars, housing and stocks. What we can be absolutely certain about is that no one can retire just sitting on cash and eating seed corn to pay the bills.