{"id":1375,"date":"2011-10-17T19:24:19","date_gmt":"2011-10-17T23:24:19","guid":{"rendered":"http:\/\/goldstocksforex.com\/?p=1375"},"modified":"2011-10-17T19:24:19","modified_gmt":"2011-10-17T23:24:19","slug":"feds-kocherlakota-on-why-balance-sheet-expansion-need-not-be-inflationary-real-time-economics-wsj","status":"publish","type":"post","link":"https:\/\/thepatientinvestor.com\/index.php\/2011\/10\/17\/feds-kocherlakota-on-why-balance-sheet-expansion-need-not-be-inflationary-real-time-economics-wsj\/","title":{"rendered":"Fed\u2019s Kocherlakota on Why Balance Sheet Expansion Need Not Be Inflationary – Real Time Economics – WSJ"},"content":{"rendered":"

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.<\/p>\n

……. Banks have few good lending opportunities, and so they\u2019re not trying to attract deposits. As a result, they are keeping nearly $1.6 trillion of reserves at the Fed in excess of what they need to back their deposits.<\/p>\n

…… Some observers are concerned that ……. the banks\u2019 excess reserves will serve as kindling for an inflationary fire. This concern would have been entirely appropriate three years ago. But in October 2008, Congress granted the Federal Reserve the power to pay interest on bank reserves. Right now, that interest rate is 25 basis points, or 0.25%. By raising that rate judiciously, the Fed has the ability to deter banks from using their reserves to create money, and through this mechanism, the Fed can prevent inflation.<\/p><\/blockquote>\n

via Fed\u2019s Kocherlakota on Why Balance Sheet Expansion Need Not Be Inflationary – Real Time Economics – WSJ<\/a>.<\/p>\n

Monetary expansion through further asset purchases by the Fed (quantitative easing) would be ineffective, simply boosting the level of excess reserves held by banks on deposit at the Fed. Monetary tightening would be more difficult, but could be achieved by raising the interest rate paid on excess reserves in order to discourage banks from using their excess reserves. That would raise the overnight rate (fed funds rate) in the market and restrict banks from expanding their balance sheets.<\/p>\n","protected":false},"excerpt":{"rendered":"

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 attract deposits. As a result, … <\/p>\n

Continue reading “Fed\u2019s Kocherlakota on Why Balance Sheet Expansion Need Not Be Inflationary – Real Time Economics – WSJ”<\/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":[31,34],"tags":[368,1313,1352,2345,2347,2386],"class_list":["post-1375","post","type-post","status-publish","format-standard","hentry","category-the-fed-banks-interest-rates","category-us-canada-countries-regions","tag-bank-reserves","tag-excess-reserves","tag-fed","tag-monetary-expansion","tag-monetary-tightening","tag-multiplier"],"yoast_head":"\nFed\u2019s Kocherlakota on Why Balance Sheet Expansion Need Not Be Inflationary - Real Time Economics - WSJ - 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=\"Fed\u2019s Kocherlakota on Why Balance Sheet Expansion Need Not Be Inflationary - Real Time Economics - WSJ - the patient investor\" \/>\n<meta property=\"og:description\" content=\"I\u2019ve mentioned how the Federal Reserve has bought over $2 trillion of government securities. 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This would suggest that bank lending is rising, increasing inflationary pressure. 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And most of those cash reserves are deposits at the Fed which now (post-GFC)\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":"https:\/\/i0.wp.com\/thepatientinvestor.com\/wp-content\/uploads\/2014\/02\/0b553-loantodepositratio.png?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/thepatientinvestor.com\/wp-content\/uploads\/2014\/02\/0b553-loantodepositratio.png?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/thepatientinvestor.com\/wp-content\/uploads\/2014\/02\/0b553-loantodepositratio.png?resize=525%2C300&ssl=1 1.5x"},"classes":[]},{"id":13717,"url":"https:\/\/thepatientinvestor.com\/index.php\/2014\/02\/16\/declining-us-commercial-bank-loans-2\/","url_meta":{"origin":1375,"position":4},"title":"Declining US commercial bank loans?","author":"ColinTwiggs","date":"February 16, 2014","format":false,"excerpt":"Sober Look highlights the sharply declining ratio of commercial bank loans and leases to bank deposits. Its only when we examine the detail, however, that we note cash reserves have ballooned in the last 10 years. And most of those cash reserves are deposits at the Fed which now (post-GFC)\u2026","rel":"","context":"In "Market Insights"","block_context":{"text":"Market Insights","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/market-insights\/"},"img":{"alt_text":"Ratio of commercial bank loans and leases to bank deposits","src":"https:\/\/i0.wp.com\/thepatientinvestor.com\/wp-content\/uploads\/2014\/02\/0b553-loantodepositratio.png?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/thepatientinvestor.com\/wp-content\/uploads\/2014\/02\/0b553-loantodepositratio.png?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/thepatientinvestor.com\/wp-content\/uploads\/2014\/02\/0b553-loantodepositratio.png?resize=525%2C300&ssl=1 1.5x"},"classes":[]},{"id":16023,"url":"https:\/\/thepatientinvestor.com\/index.php\/2017\/10\/23\/fed-flunks-econ-101\/","url_meta":{"origin":1375,"position":5},"title":"Fed flunks econ 101?","author":"Colin Twiggs","date":"October 23, 2017","format":false,"excerpt":"Caroline Baum's opinion on the Fed's approach to inflation: For all the sturm und drang about the Fed debasing the dollar and sowing the seeds of the next great inflation, the public\u2019s demand for money has increased. The increased desire to hold cash and checkable deposits has risen to meet\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":[]}],"_links":{"self":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/posts\/1375","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/comments?post=1375"}],"version-history":[{"count":0,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/posts\/1375\/revisions"}],"wp:attachment":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/media?parent=1375"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/categories?post=1375"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/tags?post=1375"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}