The Trillion Dollar Helicopter

  • 16 Mar 2021
  • By Eric Leininger
  • The US Treasury stated its intention to release one trillion dollars into the economy.
  • Fiscal and monetary policy are beginning to merge with potential impacts to interest rates.
  • CME Group SOFR open interest and volumes continue to break to new highs. Similarly, Eurodollar futures open interest and volumes have jumped higher.
  • BrokerTec repo volumes have increased.
  • The Federal Reserve consolidated balance sheet provides significant insights to cash movements.
  • Use the CME Group “Helicopter Indicator” to track this wall of money.

Cash is coming

There is a wall of money coming to the market and one needs to be prepared. This tsunami of cash has the potential to dislocate short-end interest rates.

In recent times, Treasury cash balances held at the Federal Reserve Bank of New York (FRBNY) have been between $200 and $400 billion to pay for upcoming government expenses. In 2020, that changed and the Treasury General Account (TGA), where it holds its cash at the FRBNY, peaked at $1.7 trillion in July. The balances remained stable, but on February 1, 2021, the Treasury announced that it will reduce its cash balance to $800 billion by March 31, 2021 and to $500 billion by June 30, 2021.

When the Treasury reduces its cash, the funds immediately leave the FRBNY and enter the economy.  Historically these cash fluctuations were small. Now nearly $1 trillion will enter the economy in a very short period of time. So far, the reduction in the cash account has been a trickle but that could soon be a waterfall of cash leaving the TGA and entering the economy. In addition, in July, Congress will again debate the debt cap expected to expire July 31, 2021. Further reductions of the TGA to under $500 billion are reasonable to consider.

Figure 1: TGA Weekly Account Balances and Forecast

Source: CME and FRB  H.4.1 Factors Affecting Reserve Balances. Figures in trillions USD

The Treasury has potentially crossed into monetary policy by releasing so much cash. The impacts may be material. A survey of the workings between the Federal Reserve balance sheet and the TGA can shed insight to this unique phenomenon and help one manage potential risks.

CME Group has a comprehensive set of products, services, and tools that can potentially help navigate these potentially turbulent times. Short-term interest rate futures ‒ including 1- and 3-month SOFR, Eurodollars, and associated options ‒ can help manage price risk. BrokerTec’s repo platform provides best execution services to manage financing for Treasuries across GC and specials in overnight and term repo.

Federal Reserve record balance sheet and leverage

Since the Great Financial Crisis over a decade ago, the Federal Reserve implemented several programs to stabilize the financial system. One of the largest and most used programs is the Large-Scale Asset Purchases program in which the FRBNY issues federal funds (overnight FRB liabilities held by banks) to purchase fixed income securities. During the prior decade, most of those assets were Treasury securities, agency MBS, and agency debt. More recently, the type of asset purchase programs has increased in breath to support proper functioning of credit and other markets.

This process of buying term assets and replacing them with overnight ones, changes both market duration as well as the amount of cash in the banking system. Market duration is shortened from that of the securities purchased to overnight. Cash is injected into the system in exchange for the securities. In contrast, when the Treasury reduces its cash, the funds simply leave the deposit account at the FRBNY, have no similar offset, and that cash needs to find a home.

Every Wednesday, the Federal Reserve Bank releases its H 4.1 Factors Affecting the Reserve Balances. This report and prior ones are probably best captured and archived in the interactive FRED database that is managed by the Federal Reserve Bank of St. Louis. 

At the beginning of 2021, the high levels of the Fed’s balance sheet saw assets and liabilities increased by over $3 trillion during 2020. Capital increased slightly and leaving the gearing of the Federal Reserve system is approaching 200X.

Figure 2: Consolidated Federal Reserve Bank Balance Sheet

H 4.1 Report




Total Assets




Total Liabilities




Total Capital




Source: FRB H.4.1 Factors Affecting Reserve Balances. Figures in million USD


To support the financial system and foster economic conditions, the FRBNY expanded the balance sheet in size and created several new programs. It has several new programs to support a broad array of the US and global economy by supporting credit markets, direct lending to medium-sized businesses, financial support to state and local governments, and has taken a larger role supporting foreign central banks by providing them more dollar funding through larger foreign exchange liquidity swaps.

In contrast, the repo program has gone dormant, a much different situation than in 2019 when repo markets were in turmoil. This could potentially change.

Figure 3: Selected Federal Reserve Asset Accounts

Selected Asset Purchase Programs - H 4.1 Report




Securities held outright




Repurchase agreements








Commercial Paper Funding Facility II LLC




Corporate Credit Facilities LLC




Main Street Lending Program




Municipal Liquidity Facility LLC




Central bank liquidity swaps




Source: FRB H.4.1 Factors Affecting Reserve Balances. Figures in million USD


On the other side of the Fed’s ledger, material changes were concentrated in fewer accounts. Federal Reserve Notes increase slightly. These are US dollars in circulation. “Federal Reserve Note” is printed across the top of all seven denominations. In an age of increasing digital transactions, cash in circulation still increased by nearly $300 billion in 2020.

Figure 4: Selected Federal Reserve Liability Accounts

Selected Liabilities - H 4.1 Report




Federal Reserve Notes (Cash)




Deposits held by depository institutions




US Treasury, General Account




Source: FRB H.4.1 Factors Affecting Reserve Balances. Figures in million USD

Deposits held by depository institutions (banks) comprised the bulk of the increase in FRB liabilities. These are almost entirely excess reserves. This significantly contributed to the increase in M2 (broad money) that includes M1 savings deposits plus small-denomination time deposits.

The Board of Governors of the Federal Reserve System (H.6 Release) shows that M2 increased by nearly $4 trillion; from $15.4 trillion in January 2020 to $19.4 trillion in December 2020. Even more impressive are the year-on-year percentage changes. M2 changed by roughly 2.5 times more than similarly large changes since the early 1980s.

Figure 5: Broad Money Growth Exceeded Anything Seen Before

Source: Board of Governors of the Federal Reserve System H.6 Release

As individual and corporations use cash in the system to purchase goods and services, banks lend funds to support these activities. This is sometimes referred to the velocity of money, or the number of times $1 is spent during a period of time. The velocity of money has never been lower since the late 1950s.  Cash is not exchanging hands, it is just sitting. A trillion more dollars will need to find a very large place to sit. In this game of financial musical chairs, this can push short-term interest rates in interesting ways. No one knows what may happen as we have never seen these levels before nor the sizes of them in recent times.

Figure 6: The Death of Money Velocity

Source: FRED Database

Treasury General Account merges fiscal and monetary policy

Unlike the Federal Reserve consolidated balance sheet, the Treasury balance sheet is the Financial Statement of the United States Government. It “show[s] the government’s assets, liabilities, and net position.” It is highly complex and incomplete (valuing “Old Faithful” or the intangible brand of the United States is hard). The main link between the US Government and the Federal Reserve is the TGA. (The other one is the accrual account for the Fed to dividend its profits back to the US Government).

When Congress passed the initial Coronavirus Aid, Relief, and Economic Security Act (CARES Act) in the amount of $2.2 trillion on March 27, 2020, things changed. The Treasury massively increased its bill and coupon issuance programs in April and May of 2020. See a summary of the issuance in a prior CME Group paper US Treasury Issuance: Drivers, Mechanics, and Holders. The TGA balance exploded and pushed to $1.79 trillion on June 29, the current record.

Figure 7: Treasury General Account at FRBNY Prior Two Decades

Source: FRB H.4.1 Factors Affecting Reserve Balances

When Congress passed an additional fiscal stimulus package in December for $900 billion (Consolidated Appropriations Act, 2021 and often referred to as CARES Act 2), the Treasury could have paid for all the spending requirement using the TGA and still have over $500 billion left. Indeed, part of the Treasury Quarterly Refunding Statement on November 4, 2020 made it clear that the TGA balance would most likely remain high.

“Consistent with its guidance in the August refunding statement, Treasury continues to take a precautionary, risk-management driven approach by maintaining large cash balances in light of the unprecedented size and ongoing uncertainty regarding COVID-19 related outlays. Treasury also seeks to change auction sizes gradually to minimize any potential market disruption. While Treasury expects its cash balance to decline over the upcoming quarter, the extent of the decline will depend on several uncertain factors, including the pace of outflows under current law and the potential for additional legislation.”

On February 2, 2021 that prior statement carried a different tone and a much more dramatic potential outcome.

During the April - June 2021 quarter, Treasury expects to borrow $95 billion in privately-held net marketable debt, assuming an end-of-June cash balance of $500 billion.

On March 11, 2021, a third stimulus package, the American Rescue Plan Act of 2021, was signed into law by President Joe Biden. To fund the $1.9 trillion bill, Treasury will likely continue to draw down on TGA and issue more coupons over the coming quarters.

Related: Four Questions About the American Rescue Plan Act of 2021

Helicopter money to the rescue

Treasury is now moving into the business of monetary policy. This was forecasted by Ben Bernanke. In November of 2002, Governor Ben Bernanke gave a speech on deflation at the National Economists Club in Washington, D.C. To battle deflation a “policy could be significantly enhanced by cooperation between the monetary and fiscal authorities.” and, “be an effective stimulant to consumption and hence to prices.”

A money-financed tax cut is essentially equivalent to Milton Friedman's famous "helicopter drop" of money. Of course, in lieu of tax cuts or increases in transfers the government could increase spending on current goods and services or even acquire existing real or financial assets.

That is essentially were we find ourselves today. There are considerable linkages between the monetary and fiscal authorities. As the Treasury General Account (TGA) increased considerably, and more funds were deposited into the Treasury’s account at the FRBNY, those funds were taken out of the system.  They did not contribute to M2. The current size and, potential dynamic reduction of cash and the relationship between the FRBNY and the TGA means a lot more money is potentially hitting the system if the Fed does not sell or reverse repo and offsetting amount of securities. Over a trillion dollars more!

To highlight this point, CME Group constructed an indicator and titled it the Helicopter Indicator. It is simply bank deposits plus cash in circulation. The Helicopter Indicator is an elegant way to capture government transfers in a nice simple measure. It is the result of all the efforts of the monetary and fiscal authorities’ policies. It is the resultant drop of “helicopter money” Governor Bernanke spoke of nearly 20 years ago.

The amount of currency in circulation is fairly stable, but the dynamics between the TGA and deposits at banks is likely to change going forward. Any decrease in the TGA is an increase in cash. Here is what the Helicopter Indicator did over the prior years.  We include our projection of cash increases into June 2021:

Figure 8: The Helicopter Index to the Rescue

Source: FRB H.4.1 Factors Affecting Reserve Balances

This event could be a black swan type. In modern time, the TGA account has never been so both so large and forecast to decrease so rapidly. The only historic analog when the TGA account was decreasing and the Helicopter Indicator was increasing was a period from December 2016 thorough early April 2017. This is denoted with a small circle.

We were unable to find strong week-on-week correlations with other asset classes such as gold, oil, or short-end interest rate moves. However, during this period, the economy began to rapidly recover and the FOMC changed to a more hawkish tone. This prompted a 20-basis point sell in in 2-year yields in Q1 of 2017. Ultimately during this window of time, the 2s 10s Treasury curve finished steepening. The curve then flattened for nearly two and a half years, ultimately turning slightly negative in August of 2019.

Figure 9: The 2-year versus 10-year Treasury Yield Curve

Source: FRB

Navigating 2021

The challenges this year are many.  However, the stress test of the system has dawned a bright future for 2021 as the economy surprised to the upside in Q4 of 2020, +1%. The vaccination roll-out looks promising and infection rates are now dropping quickly. Volatility across asset classes can provide early indications of price movement and CME Group CVOL Indexes across 15 products and five asset classes will be helpful for market participants to monitor. SOFR futures continue to increase in usage and the BrokerTec repo platform has seen large increases in its activity.

Figure 10: CME SOFR Volume and Open Interest Continue to Reach New Highs

Source: CME Group

Figure 11: CME Eurodollar Volume and Open Interest Moving Higher

Source: CME Group

Fiscal and monetary policies will continue to play a highly supportive role for the economy as the private sector output comes back in line. Coupon issuance will continue to increase while the Federal Reserve will take a much smaller part reducing outstanding coupons. Prepare your hedging activity accordingly.

About the Author

Eric Leininger is Executive Director of Financial Research and Product Development at CME Group.