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| Graph #1: Total Reserves (excluding Gold) Since 1990 (The vertical scale is a log scale. The vertical red lines are equal length.) |
Running about $60 Billion for two decades, then doubling to $120 Billion overnight.
Running about $120 Billion for a decade, then doubling to $240 Billion overnight.
PS: Since April 2020 the reserve requirement is zero.
1 comment:
Fed policy could have created something like a straight-line increase in reserves or (more realistically) a smooth (constant-percentage) exponential increase. Even unwittingly this could have happened, because growth tends to follow a path something like exponential increase. It could have happened, but it didn't happen.
Why not? Because something was interfering with the process. Something was interfering with economic activity: Something was interfering with spending. The actual path of reserves does not look like exponential increase because Fed policy adjusted its response to take this interference into account. The result is the path suggested in red on the graph: a trend of no increase, then a sharp increase, and repeat.
What was interfering? Inflation, probably, mostly inflation or anticipated inflation. (At the Fed, that's their main focus.) And then also the occasional crisis, which would have been created by the response to inflation, by the holding back on reserves. That's why the red line alternates between horizontal and vertical.
In the years before 1990, the trend changes were not so clearly divided between horizontal and vertical, because the problem was not yet so extreme.
What problem? But you know the answer. Ask yourself: What are reserves used for? The answer is that reserves are a necessary part of "banking" and the increase in reserves is a necessary part of an increase in lending. The problem is the result of that lending. The problem is the increase in debt.
Debt is a measure of money borrowed and put into the spending stream.
Money in the spending stream affects inflation.
Inflation affects policy.
The graph shows the result.
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