Anthony wrote: “I bet they have just enough in reserve to prevent a collapse in the event of hyperinflation, or will use the reserves to buy commodities right before the crash does happen (assuming they know exactly what’s going on at the Fed).”
Recall the dynamics of fractional reserve banking; with X amount of reserves, they can generate (approximately) 10X in “money.” Basically if/when they do what you say, they will not just be buying things up right before the crash does happen, but precipitating the inflation that until now has been held in check.
Also we have to define “crash” – a normal crash tends to produce falling prices; so they won’t be buying just before that kind of crash, if they know it is coming (a big if; possibly a lot of these guys think they know, but their past performance in predicting isn’t anything to write home about. This includes having “inside information” from the Fed on any pending crash; the predictive powers of the Fed when it comes to crashes is….); anyhow, if they wait for everything to tank, then buy things up “on the cheap” using their excess reserves, they’ll then be precipitating the inflation.
OtoH, if by ‘crash’ here you mean “they try to buy things right before teh inflation,” well that’s practically self-fulfilling because as soon as they do so, they’ll be unleashing a torrent of currency into the economy.
[Caviates are probably in order with respect to the degree to which financial institutions can directly transform their excess reserves into 10X monies that they themselves can directly use to buy up teh stuffs. But most of these large financial institutions have enough “partners” that they could basically swing it. However, – and this is a big however – it is not really in the interest of U.S. banks to destroy the currency that all their banking transactions are denominated in. Which may explain why they’re sitting on vast amounts of excess reserves right now and are not willing to unleash cash into the economy to reduce this to the usual level of reserves – which is, practically zero “excess” reserves. I mean, basically that will only happen in the Gotterdamerung of the U.S. Banking System. Which we may not have to wait more than a few years for, anyhow. I certainly don’t expect it to take longer than another decade.]