When Dexia was nationalized I said the clock was now ticking. Counterparty risk was the new threat to the global economy. When confidence is gone the system simply shuts down. What does that mean though? How do you measure confidence or lack thereof?
Simply look at where cash is going. Recently released data shows a record jump in the foreign reverse repurchase agreement balance held at the Federal Reserve (first reported by Zero Hedge on November 3).
In just one week a whopping $43.2 billion in liquidity was removed from the system and deposited at the Fed. That is a 53% jump in the total balance from $81.3 billion to $124.5 billion. The last time such a move happened was the week of September 24, 2008 when $44 billion was removed. At the height of the 2008 financial crisis the total balance held at the Fed reached $107.8 billion.