This graph shows U.S. dollars in circulation per capita—in other words, how much physical cash is held outside the Federal Reserve for each person living in the U.S. As of the November 2018 observation, that amount is $6,575. We checked, and no one on the FRED Blog team is holding that much cash right now. We assume not many of our readers would hold that much cash. So, who is holding it? Part of it may be lost. Much of it is held by domestic businesses and governments. And then there are all those dollars held abroad. In some countries, the dollar is valued over the local currency for its stability and low inflation rate. In fact, the following countries have adopted the U.S. dollar as legal tender and abolished their own currency: British Virgin Islands, Caribbean Netherlands, East Timor, Ecuador, El Salvador, Marshall Islands, Federated States of Micronesia, Palau, Panama, and Turks and Caicos Islands. Many more countries use the U.S. dollar alongside their own currency, either formally or informally. In addition, in those countries where the banking system is underdeveloped or not trusted, savings can be held mostly in U.S. cash in freezers and mattresses. (Note that foreign currency reserves held by central banks are rarely cash: They’re mostly held in Treasury bonds or accounts at the Fed.)
How this graph was created: Search for “currency in circulation” and click on the monthly series. From the “Edit Graph” panel, add a monthly population series, and apply formula a/b*1000.
This FRED graph plots quarterly foreign direct investment (FDI) flows into the U.S. as a percent of GDP. And what is FDI? It’s the flow of capital across borders when a firm owns a company in another country. But it’s more than simply owning stock in a foreign company: It implies that the investor is directly involved in the foreign company’s day-to-day operations.
FDI is beneficial to job creation and a country’s growth. In the U.S., it began to pick up after 1975 and spiked in the late-1990s and early 2000s, corresponding with the tech bubble. During recessions, which are represented in the graph by shaded bars, FDI systematically falls. Since the Great Recession, average FDI flows have been higher than in previous decades, ranging from 1% to 2% of GDP each quarter.
How this graph was created: Search for and select “Rest of the world; foreign direct investment in U.S.; asset, flow series (ROWFDIQ027S).” From the “Edit Graph” panel, use the customize data option to add the nominal quarterly GDP series (GDP). In the formula box, type ((a/1000)/b)*100 and click “Apply.”
In 1922, the Federal Reserve Board began offering its industrial production index, with data starting in January 1919—which means we now have 100 years of data!
This series has been extremely useful in helping us gauge the state of the economy: At first, industrial production was basically the only data series available before the computation of GDP; and the data are published more frequently and quickly than GDP data. The disadvantage is that industrial production doesn’t encompass the entire U.S. economy. In fact, it has encompassed less and less as the economy has matured into primarily a service economy.
How competitive are countries’ banking markets? It’s a complicated question that requires some thought and effort to answer: First, there are several ways to measure competition. One way is to measure the concentration of market shares. But this method isn’t perfect because there may still be substantial competition in a market with few players. Another way is to look at markups—that is, the difference between the price charged and the marginal cost (the cost of one additional produced item). The problem here is that it’s difficult to directly observe those costs, so the costs need to be inferred.
Thankfully, FRED has data that already have the measurements built in: World Bank economists Asli Demirguc-Kunt and Maria Soledad Martinez Peria devised a way to measure banking competition, and the World Bank has published these so-called Lerner indices for a few countries and a few years. The graph above includes competition indices for the U.S., Canada, Switzerland, and the U.K., where smaller numbers indicate more competition. It seems that bank competition in the U.S. is relatively stable, with a slight trend toward less competition. The U.K. seems to endure wild swings, with a similar trend. Smaller countries such as Canada and Switzerland don’t necessarily have less competition due to their smaller market sizes. In fact, the Swiss banking market seems to be even more cut-throat since the Great Recession, likely because some interest rates are negative. The opposite happened in Canada, which hasn’t been affected as much by the previous financial crisis.
How this graph was created: Search for “Lerner index,” select the chosen countries, and click “Add to Graph.”
How much economic risk are businesses facing these days? FRED can help us consider what the market is telling us about the level of risk by showing us the yields of various types of corporate bonds. Moody’s business is, in part, to classify corporate bonds according to their risk, and bonds within a rating should have the same level of risk through time. The yields of these bonds may still change, though, because they’re driven mostly by a risk premium (which is different in each risk rating) and the supply and demand of funds. An easy way to properly measure the latter is to take the difference between the yields of two risk ratings. In the graph, we’ve done this for the ratings Aaa and Baa. What remains is the excess risk of Baa over Aaa bonds. Indeed, as the economy becomes riskier, lower-rated bonds will become riskier more quickly than higher-rated bonds. The graph shows that risk today (at the date of this writing) is basically historically normal, if a little elevated compared with previous years. However, it’s nowhere near as risky as it was during the Great Depression, the early 1980s, or the Great Recession.
How this graph was created: Search for and select “Moody’s Baa” and click “Add to Graph.” From the “Edit Graph” panel, add a series by searching for “Moody’s Aaa” and apply formula a-b.
The views expressed are those of individual authors and do not necessarily reflect official positions of the Federal Reserve Bank of St. Louis, the Federal Reserve System, or the Board of Governors.
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