2 ms·
But the "real money base" will expand on demand if the banks need it. It's not a limiting factor! The loan happens first. The base money is created (if needed)
by rags2riches 7y ago
But the "real money base" will expand on demand if the banks need it. It's not a limiting factor! The loan happens first. The base money is created (if needed) after the fact. It's not as if base money is pushed out there and then the base money is used to create loans. Loans pull base money into being.
- kgwgk 7y agoIt’s not a limiting factor anyway because US banks have 1.4 trillion dollars in excess reserves deposited at the Fed (down from 2.7 trillions five years ago!). The monetary base (physical currency plus banks deposits at the Fed) is currently $3.3tn. M1 (circulating cash plus on demand deposits) is $3.9tn (the money multiplier is slightly above 1, but it was below 1 for most of this decade!). M2 (including also savings accounts) is $14.9tn. M2/MB is 4.5, it has ranged between 3 and 5 over the last 10 years. It was between 8 and 12 in the four decades before 2008.