[lbo-talk] credit crunch

Julio Huato juliohuato at gmail.com
Sat Jan 3 07:27:52 PST 2009


Another admittedly crude (but telling) way to look at this is to see how bank reserves evolved:

http://www.federalreserve.gov/releases/h3/Current/

Then, look at how total deposits or money stock measures have evolved:

http://www.federalreserve.gov/releases/h8/current/ http://www.federalreserve.gov/releases/h6/Current/

Bank reserves shot up in Sep. and Oct. 2008. On the other hand, total deposits and M measures in the same period just had a little uptick. All the way to the last data point available, reserves were building up much faster than total deposits or Ms. That does it for me.

To translate into new deposits, the base money injected by the Fed had to be loaned, expanding the Ms via the multiplier mechanism. It didn't happen. The multiplier dropped. Conclusion. Credit freeze. It's eased a bit since though.



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