NP - The Fed's Priorities

[David Morris]

http://www.slate.com/blogs/moneybox/2012/08/03/the_monetary_base_is_irrelevant.html

What you see is the evolution of two things over the past 25 years.
One is the monetary base, and the other is the monetary base once you
strip "excess reserves" (money banks are keeping parked at the Fed
over and above what regulations require them to keep) out of data. As
you can see, for most of the period there's absolutely no divergence
between the trends. Then in 2008, Ben Bernanke decided that the Fed
should start paying interest on excess reserves and also embarked on a
large increase in the monetary base. The chart makes clear, however,
that relative to trend all of this money creation has just gone into
excess reserves.

This is wonky and boring, but it gets at my two monetary pet peeves.
On the one hand you have tight money advocates who say that the Fed
has printed oodles of money. What the chart shows is that they haven't
really. Or, rather, all the money that's been created is sequestered
from the actual economy and may as well not exist for most purposes.
On the other hand you have monetary policy skeptics who argue that
further stimulus would somehow be merely "pushing on a string." On the
contrary, as these charts show there's a veritable avalanche of money
the Fed could unleash upon the economy were it not deliberately paying
banks to keep the money out of play.