Reply To: Keynsians debunk inflation?


The Fed has been buying Mortgage Backed Securities and other assets from commercial banks. It has paid with cash or by crediting checking accounts banks have at the Fed. Cash and checking account balances banks have at the Fed are reserves for banks against their issue of checking accounts held by their customers. Before the downturn, banks held less than 7 percent in reserves against the checkable accounts of their customers. Today they are holding 150 percent in reserves. Banks are holding excess reserves instead of making more loans by which they expand the money stock by placing the funds in their customers’ checking accounts.

Here is the monetary base, which reflects the Fed’s payment, (i.e., “printing money”) for its purchases:

Here are bank reserves (showing the banks’ holding of the “printed money”), which are Assets for banks: