The Fed purchased $1.7 trillion of MBS, agency debt and treasuries in QE1, which began in March 2009, and as of Dec.15 was holding $2.129 trillion on the asset side of its balance sheet.
Commercial banks are currently holding $1.053 trillion on deposit at the Federal Reserve Banks, as noted on the liability side.
So the question is, where did the other $700 billion go? The stock market? Commodity speculation? Capital markets?
Care to guess?
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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.