The Fed is paying banks NOT to loan money...

[Copper Catcher]

Old News:
July 21, 2009: http://www.youtube.com/watch?v=uOdmguOiwuI

New News:
FEDERAL RESERVE statistical release at 4:30 p.m. Eastern Time
Release Date: September 23, 2010
AGGREGATE RESERVES OF DEPOSITORY INSTITUTIONS AND THE MONETARY BASE
Source: http://www.federalreserve.gov/releases/h3/current/


An explanation about the problem i.e. I noticed that banks have dramatically increased their excess reserve holdings. Is this buildup of reserves related to monetary policy? (March 2010) http://www.frbsf.org/education/activiti ... /0310.html

In conclusion… the TRILLION dollar question: Will this large quantity of excess reserves cause future inflation? The answer is almost certain in my humble opinion. YES!

[argent_pur]

The same thing happened in Weimar, the gov't pumped loads of money into the banks, but the banks held it, keeping official inflation low...once that money finally got into circulation, all Hades broke loose...

Bernanke and the rest of the Fed aren't idiots, they're very intelligent people who, IMHO, follow a very bad philosophy. It could just be that commercial banks are scared of making more loans that they know will end up in default because the employment situation is still horrendous (and, heck, THEY'RE EARNING INTEREST on these ER's), but I could also see it as a political play by the Fed, keeping official inflation figures low just before an election (not to mention the fact that the gov't didn't have to give a COLA to soc. sec. recipients, saving a bundle).

[argent_pur]

The other thing about excess reserves is that, any one particular bank can only loan out (i.e. "create") up to the amount of its excess reserves. The irony concerning ER's is that, increasing them causes M1 to shrink by decreasing the money multiplier, BUT at the same time creates a potential for an explosion in the money supply once the ER's start being loaned out again. When Ben says he'll not have deflation, I'll take him at his word and prepare for an inflation the likes of which this nation has not yet experienced...

[Lemon Thrower]

yes, they have been paying them one quarter of one percent since the fall of 2008. that is dwarfed by the money the banks are losing by not creating new loans. most u.s. banks are shrinking in terms of assets size. a small portion of that shrinkage is due to loans going bad. most of it is no one wants to borrow money to expand because the economy is crap. its not a fed conspiracy or a bank refusal to lend, its pushing on a string there are fewer borrowers who want to borrow.