Banking the Bucks
04/04/2012 | | Bank lending, commercial bank deposits, excess reserves, expansionary monetary policy, money supply
Despite what you think, monetary policy has not been expansionary, and that’s the problem. While the Fed’s assets grew from $0.8 trillion to $2.8 trillion between 10/08 and 7/11, it was matched, almost dollar for dollar, by a $1.6 trillion increase in commercial bank deposits at the Fed. The money supply cannot expand when banks keep their excess reserves at the Fed. It only grows when banks lend those monies to businesses and households.