taojaxx

The Consequences of the U.S. Monetary Base Bubble

Amazing that it would take until the 14th post to read some sensible comment on this hastily drafted column. The author of the article has obviously no idea what monetary base is (try to pay your grocery with gold at the check out register...), let alone what it means that banks would keep this much idle excess reserves. Amazing as well that it would elicit so many approving comments. I guess that's the beauty of the market and the source of its wealth redistributing function, from Joe Shmoe's 401 K to Goldman Sachs's Hampton mansion.
;-}

On Nov 09 04:18 PM user396040 wrote:

> There are legitimate reasons to be concerned about inflation at some
> point in the future and higher interest rates as well but I am not
> sure this chart is one of them. As I understand it, the monetary
> base is the amount of reserves the banks hold, including amounts
> which banks have on deposit at the Federal Reserve (e.g. Citibank's
> funds held at the Federal Reserve). Because of the extreme financial
> panic, many banks have been extraordinarily conservative in the deployment
> of cash and have decided to deposit funds at the Federal Reserve
> rather than lend them out. This has led to a big increase in the
> "monetary base" but is not, in itself, deflationary because the funds
> deposited at the Federal Reserve are not really available for anyone
> to spend. If and when conditions improve, the banks will withdraw
> these funds and lend them out or use the deposits as a base for leveraging
> more loans and deposits. I think that the issue of how to play this
> whole thing as an investor is a very interesting one. But what concerns
> me about this blog is that many participants seem to be more interested
> in ranting about public policy than figuring out how to make money
> in this admittedly challenging environment. I sense in some of these
> comments a kind of fencesitter's remorse on the part of investors
> who have missed the rally. As economists often say, bygones are
> bygones; the important question (for at least some of us) is how
> do we make money from here.