A good proxy for the expansion and/or contraction of the shadow banking market is the change in the amount of commercial paper outstanding.  Successive rounds of QE–represented by the expansion of the Federal Reserve’s balance sheet–have had a stimulative, but short lasting impact on the expansion of shadow banking credit.  Below we show the 3-month change in the Fed’s balance sheet alongside the amount of commercial paper outstanding.  The amount of commercial paper outstanding has dropped by $100 billion since the third week in May (when we first heard the word “taper”).  From this perspective, the shadow banking system is now exerting a negative credit impulse into the US economy.