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This is the correct answer. Bank deposits at the USFED skyrocketed. It was FED money, lent to banks to be redeposited with the FED, on which deposits the banks

by rrggrr 8y ago

This is the correct answer. Bank deposits at the USFED skyrocketed. It was FED money, lent to banks to be redeposited with the FED, on which deposits the banks earned interest I might add. It was a both a liquidity injection and a handout. And, it wasn't just provided to US Banks.

repsilat 8y ago
In economics terms I guess this means, - Economists say "MV = PQ", and QE adds to "M", so shouldn't "P" or "Q" go up? - But the marginal dollar of added "M" had ~zero "V", so that didn't happen. ("I guess" because I've never taken any macroeconomics and can't pretend to understand it...)
- tomrod 8y ago
  Not a bad guess! If money isn't directly pumped into the system by receiving banks, then the only direct impact is on those banks balance sheets, which affects their choices and decisions. So the effects to the overall economy are second order, and don't have the same fractional amplification like changing the reserve ratio has. While I'm an economist, and have training on the model you are mentioning, I'm not speaking from a formal model. Rather from what I've seen in a large bank's treasury while it happened. Another impact I've not seen considered is what happens when different banks have different effective reserve requirements.
- marcosdumay 8y ago
  Money parked in bounds has zero V. On stocks the V is nonzero, but it will depend on how much of it actually leaves the exchange, instead of just passing from hand to hand there.
  - pas 8y ago
    Money parked in bonds? When a bond is initially offered someone pays money for it, and the offering party gets the cash, and buys things with it. That equation is independent of the form of money. Bonds can switch hands easily. Of course, if it turns out that the bond is junk, then it becomes hard to sell, so that slows down V indeed. (Which means the economy takes a moment to think when a lot of things turn out to be shit instead of gold. Credit becomes thin, etc.)

by rrggrr 8y ago

repsilat 8y ago

In economics terms I guess this means, - Economists say "MV = PQ", and QE adds to "M", so shouldn't "P" or "Q" go up? - But the marginal dollar of added "M" had ~zero "V", so that didn't happen. ("I guess" because I've never taken any macroeconomics and can't pretend to understand it...)

tomrod 8y ago
Not a bad guess! If money isn't directly pumped into the system by receiving banks, then the only direct impact is on those banks balance sheets, which affects their choices and decisions. So the effects to the overall economy are second order, and don't have the same fractional amplification like changing the reserve ratio has. While I'm an economist, and have training on the model you are mentioning, I'm not speaking from a formal model. Rather from what I've seen in a large bank's treasury while it happened. Another impact I've not seen considered is what happens when different banks have different effective reserve requirements.
marcosdumay 8y ago
Money parked in bounds has zero V. On stocks the V is nonzero, but it will depend on how much of it actually leaves the exchange, instead of just passing from hand to hand there.
- pas 8y ago
  Money parked in bonds? When a bond is initially offered someone pays money for it, and the offering party gets the cash, and buys things with it. That equation is independent of the form of money. Bonds can switch hands easily. Of course, if it turns out that the bond is junk, then it becomes hard to sell, so that slows down V indeed. (Which means the economy takes a moment to think when a lot of things turn out to be shit instead of gold. Credit becomes thin, etc.)