{"id":13216,"date":"2016-04-28T07:25:33","date_gmt":"2016-04-28T11:25:33","guid":{"rendered":"http:\/\/goldstocksforex.com\/?p=13216"},"modified":"2016-04-28T07:25:33","modified_gmt":"2016-04-28T11:25:33","slug":"lighting-a-fuse","status":"publish","type":"post","link":"https:\/\/thepatientinvestor.com\/index.php\/2016\/04\/28\/lighting-a-fuse\/","title":{"rendered":"Lighting a fuse"},"content":{"rendered":"

The Fed quit quantitative easing more than a year ago, limiting total assets on its balance sheet to $4.5 trillion. But more than $2.5 trillion of cash injected into the financial system had been deposited straight back into the Federal Reserve system by banks as excess reserves, earning 0.25% p.a.<\/p>\n

\"Fed<\/p>\n

Fresh money continued to leak into the financial system as banks drew down their excess reserves, highlighted above by the widening gap between Total Assets and Excess Reserves. In December 2015 the Fed doubled the rate payable on excess reserves<\/a> to 0.50% p.a. The intention is clearly to attract more excess reserves and narrow the gap, or at least slow the rate at which excess reserves are being withdrawn to prevent further widening.<\/p>\n

Easy money policies followed by central banks around the world are not achieving the desired result of reviving business investment. If we examine the Fed’s track record over the last two decades, sharp surges in business credit were accompanied by speculative bubbles — stocks ahead of the Dotcom crash and housing ahead of the GFC — with disastrous results. GDP failed to respond.<\/p>\n

\"Business<\/p>\n

The latest rally in global markets is also driven by monetary easing, this time in China, with a massive surge in the money supply<\/a> signaling PBOC intentions to print their way out of trouble (and into an even bigger hole).<\/p>\n

Ineffectiveness of monetary policy in solving structural problems has often been described as “like pushing on a string”. But recent experience shows it is more like lighting a fuse.<\/p>\n

\n

\nThis is a nightmare, which will pass away with the morning. For the resources of nature and men’s devices are just as fertile and productive as they were. The rate of our progress towards solving the material problems of life is not less rapid. We are as capable as before of affording for everyone a high standard of life …. and will soon learn to afford a standard higher still. We were not previously deceived. But to-day we have involved ourselves in a colossal muddle, having blundered in the control of a delicate machine, the working of which we do not understand. The result is that our possibilities of wealth may run to waste for a time – perhaps for a long time.\n<\/p>\n

~ John Maynard Keynes: The Great Slump of 1930<\/p>\n<\/blockquote>\n","protected":false},"excerpt":{"rendered":"

The Fed quit quantitative easing more than a year ago, limiting total assets on its balance sheet to $4.5 trillion. But more than $2.5 trillion of cash injected into the financial system had been deposited straight back into the Federal Reserve system by banks as excess reserves, earning 0.25% p.a. Fresh money continued to leak … <\/p>\n

Continue reading “Lighting a fuse”<\/span><\/a><\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_mo_disable_npp":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[31,41,34],"tags":[1313,1352,2344,2346,2831],"class_list":["post-13216","post","type-post","status-publish","format-standard","hentry","category-the-fed-banks-interest-rates","category-china-hk","category-us-canada-countries-regions","tag-excess-reserves","tag-fed","tag-monetary-easing","tag-monetary-policy","tag-quantitative-easing"],"yoast_head":"\nLighting a fuse - the patient investor<\/title>\n<meta name=\"robots\" content=\"noindex, follow\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Lighting a fuse - the patient investor\" \/>\n<meta property=\"og:description\" content=\"The Fed quit quantitative easing more than a year ago, limiting total assets on its balance sheet to $4.5 trillion. 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The graph below shows that total assets leveled off at $4.5 trillion and have been maintained at that level since. But the graph also shows that the Fed\u2026","rel":"","context":"In "Banks & Interest Rates"","block_context":{"text":"Banks & Interest Rates","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/the-fed-banks-interest-rates\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":10295,"url":"https:\/\/thepatientinvestor.com\/index.php\/2014\/07\/14\/fed-excess-reserves-shrinking\/","url_meta":{"origin":13216,"position":1},"title":"Fed excess reserves shrinking","author":"ColinTwiggs","date":"July 14, 2014","format":false,"excerpt":"Commentators have highlighted the fact that bank excess reserves held on deposit at the Fed \u2014 and on which banks are paid interest at 0.25% p.a. \u2014 are declining. This would suggest that bank lending is rising, increasing inflationary pressure. The Fed is well aware of the situation ...and has\u2026","rel":"","context":"In "Banks & Interest Rates"","block_context":{"text":"Banks & Interest Rates","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/the-fed-banks-interest-rates\/"},"img":{"alt_text":"Fed Excess Reserves- Weekly","src":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2014\/2014-07-14-fed-excessreserves-wk.png?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2014\/2014-07-14-fed-excessreserves-wk.png?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2014\/2014-07-14-fed-excessreserves-wk.png?resize=525%2C300&ssl=1 1.5x"},"classes":[]},{"id":11035,"url":"https:\/\/thepatientinvestor.com\/index.php\/2014\/10\/01\/qe-the-end-is-nigh\/","url_meta":{"origin":13216,"position":2},"title":"QE: The end is nigh?","author":"ColinTwiggs","date":"October 1, 2014","format":false,"excerpt":"I have read a number of predictions recently as to how stocks will collapse into a bear market when quantitative easing ends. The red line on the graph below shows how the Fed expanded its balance sheet by $3.5 trillion between 2008 and 2014, injecting new money into the system\u2026","rel":"","context":"In "Banks & Interest Rates"","block_context":{"text":"Banks & Interest Rates","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/the-fed-banks-interest-rates\/"},"img":{"alt_text":"Fed Assets and Excess Reserves on Deposit","src":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2014\/2014-10-01-fedassets-reserves.png?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2014\/2014-10-01-fedassets-reserves.png?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.incrediblecharts.com\/images\/2014\/2014-10-01-fedassets-reserves.png?resize=525%2C300&ssl=1 1.5x"},"classes":[]},{"id":1375,"url":"https:\/\/thepatientinvestor.com\/index.php\/2011\/10\/17\/feds-kocherlakota-on-why-balance-sheet-expansion-need-not-be-inflationary-real-time-economics-wsj\/","url_meta":{"origin":13216,"position":3},"title":"Fed\u2019s Kocherlakota on Why Balance Sheet Expansion Need Not Be Inflationary – Real Time Economics – WSJ","author":"ColinTwiggs","date":"October 17, 2011","format":false,"excerpt":"I\u2019ve mentioned how the Federal Reserve has bought over $2 trillion of government securities. It has funded that purchase by tripling the amount of deposits held by banks with the Fed \u2014 what are called bank reserves. ....... Banks have few good lending opportunities, and so they\u2019re not trying to\u2026","rel":"","context":"In "Banks & Interest Rates"","block_context":{"text":"Banks & Interest Rates","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/the-fed-banks-interest-rates\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":7851,"url":"https:\/\/thepatientinvestor.com\/index.php\/2013\/06\/03\/impact-of-qe-or-lack-thereof-is-reflected-by-excess-reserves\/","url_meta":{"origin":13216,"position":4},"title":"Impact of QE (or lack thereof) is reflected by excess reserves","author":"ColinTwiggs","date":"June 3, 2013","format":false,"excerpt":"JKH at Monetary Realism writes: ....there is a systematic tendency in the blogosphere and elsewhere to misrepresent the impact of QE in a particular way in terms of the related macroeconomic flow of funds...... 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