FED can't stop with printing!
After ‘Lehman failure’, the FED started with biggest money printing of all time. Prior to the Lehman Brothers failure, the FED reports that the monetary base stood at $849.8 billion and until today, the monetary base had expanded to more then $4,0 trillion. This $3,15 trillion expansion has all taken place within 8 years. If, instead, the Fed had continued to expand the monetary base at a normal pace, it would have taken nearly 170 years to come this far. In other words, With normal growth, the FED’s recent $3,15 trillion monetary expansion would not have been achieved until the year 2185.!
We have seen at this week’s FOMC meeting, that the FED can’t stop with printing, not until… the next meeting? I don’t think so. Next FOMC meeting is in June and there is no way for FED to hike rates then, on my oppinion not until at least the end of this year, maybe in October’s meeting!? But most likely, the FED will extend that for the next year, for 2016.! Janet Yellen admitted that it’s not so easy to tighten monetary policy now, and based on this numbers, you can see why. On my oppinion, when it comes to tightening, that will be much smaller and softer than expected. As for that, I think we can be calm until at least until October, regardless of the better figures from the US economy.
I see all of this in a completely different light. The big turning point was obviously the financial crash of 2008 punctuated by the failure of Lehman Brothers. In the period prior to the financial crash every bank and lender was involved in what is known as fractional-reserve banking. The all time worse offender was the UK bank known as Bradford and Bingley plc.
Wikipedia defines fractional-reserve banking as the practice whereby a bank takes in deposits, creates credit or makes loans, and holds reserves (to satisfy demands for withdrawals) that are less than the amount of its customers’ deposits. Reserves are held at the bank as currency, or as deposits in the bank’s accounts at the central bank. Because bank deposits are usually considered money in their own right, fractional-reserve banking permits the money supply to grow beyond the amount of the underlying reserves of base money originally created by the central bank.
Because of the financial crisis the liquidity created by fractional-reserve banking evaporated. To replace this liquidity, the FED lead by Ben Bernanke, embarked on the massive quantitative easing program. The liquidity provided by the FED merely has replaced the liquidity previously provided by fractional-reserve banking. Because of the previous high levels of fractional-reserve banking posed such a serious risk to the economy, current levels have been restricted.
Thus until the banks and other lenders are able to provide the liquidity they previously provided, the role falls on the FED which has step up to the plate and effectively saved America from a repeat the events which lead up to and prolonged the Great Depression.
Thus in summary the $3.15 trillion expansion of the monetary base, in my opinion, represents and is equivalently to the loss of money caused by the reduction in the level of fractional-reserve banking.
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