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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory

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To: Tommaso who wrote (49273)	1/9/2006 5:18:46 PM
From: mishedlo	Read Replies (1) of 110194

Mr. Shostak either does not know or chooses not to take notice of the fact that it is perfectly legal for a bank to have a billion dollars in demand deposits and only have 150 million dollars in actual cash. Yes, I know that the real situation is more complex than this, but Mr. Shostak cannot seem to grasp even an oversimplified description, that no student can pass Economics 101 without grasping. Any good economics textbook will explain the way in which the interbank transactions, using excess reserves for loans or to buy bonds, mutltiplies the effect of any addition of actual cash (or Federal Reserve credits) and expands the money supply. I believe you are totally 100% wrong. You keep mixing his beliefs on how it should work with how it does work. He is fully aware that banks do not keep 100% reserves on DDA accts. He wrote about it. He thinks they should. I happen to agree but I am not sure if you do. He mentioned a report by the St. Louis FED showing how much money was being swept out of DDA accounts. I even found a link for that obscure report a couple weeks ago. Mish

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