tag:blogger.com,1999:blog-648884752216444797.post2174072445333913153..comments2024-03-28T09:59:13.754-07:00Comments on bionic mosquito: Why the Excess Reserves? bionic mosquitohttp://www.blogger.com/profile/12002548958078731031noreply@blogger.comBlogger1125tag:blogger.com,1999:blog-648884752216444797.post-46698958512189276962013-06-20T12:17:38.514-07:002013-06-20T12:17:38.514-07:00NO, this is just déjà vu. The paradigm is the 196...NO, this is just déjà vu. The paradigm is the 1966 S&L crisis. Bankrupt you Bernanke doesn't understand the difference between money & liquid assets (theoretical model). <br /><br />What should Bankrupt you Bernanke do? Put it in reverse & get the CBs out of the savings business & simultaneouly raise reserve requirements. I.e., the welfare of the CBs is dependent upon the welfare of the NBs. The NBs are the CB's customers. Transferring saved deposits thru the NBs (& shadow banks) cannot reduce the size of the CB system. Deposits are simply transferred from the saver to the NB to the borrower, etc.<br />Economists were also blindsided by stagflation in the 60's & 70's (business stagnation accompanied by inflation). And its being blindsided once again by the exact same paradigm - increasing infusions of Reserve Bank Credit to generated the same inflation adjusted dollar amounts of gDp. <br />The earlier problem was the result of 5 successive raises in Reg Q ceilings (but only for the CBs as the NBs weren't as yet regulated). Today's problem is the same with the introduction of paying interest on excess reserve balances. <br />The IOeR policy induces dis-intermediation (an outflow of funds or negative cash flow). I.e., CB dis-intermediation hasn't been predicated on interest rates since 1933. The IOeR policy causes the NBs to shrink in size, but the size of the CB system to remain unaffected. <br />See: "Low Inflation in a World of Securitization" FRB-STL<br /><br />"U.S. credit conditions may not drastically improve until sources of market funding start to recover. The Bank of England has moved away from asset purchases toward incentivized lending schemes that loan high-quality collateral (gilts) to banks, which can then be used to obtain cheap funding in repo markets. Given the U.S.’s reliance on market-based credit, similar policies to subsidize repo borrowing may have more impact than continuing to increase bank reserves" <br /><br />http://bit.ly/101eSiC<br />Salmo Truttahttps://www.blogger.com/profile/13910212017849902362noreply@blogger.com