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Monetary Mechanisms: Then and Now

"Additional depository institutions will have authority to create money: they will be allowed to lend to their customers by increasing the transaction balances of the borrowers. But all depository institutions offering transaction balances will be subject to Federal Reserve requirements. Since the FED can control the amount of assets that depository institutions may use to meet reaser requriements, the FED will be able to control growth of transaction balances by controlling the growth of reserves" R. Alton Gilbert Aug 25, 1980.

The point is that you can't segregate transaction accounts from savings-investment accounts (time deposits). An increasing percentage of newly created money was transferred into interest-bearing accounts and the FED ignored the growth of highly liquid interest-bearing accounts (ignored the growth of the money supply).

If the “store of purchasing power” attribute of money, when applied to a given asset, is to have significant meaning, it ought to be defined in terms which are applicable to the whole economy. That is, no asset really has a “monetary store of purchasing power” quality unless there can be a net conversion of that asset into money, ceteris peribus.

In other words it must be possible to effect this conversion without necessitating that any present money holder reduce/liquidate his holdings/assets. Any other interpretation becomes mired in a futile discussion of relative degrees of confidence and liquidity.

But much more than monetary liquidity for the individual holder is necessary if an asset can be said to have the “store of purchasing power” quality; it must be simultaneously monetarily liquid for society as a whole.