Mike Maloney begins his new video discussing currency creation. He starts by explaining why banks hold billions in excess reserves and how it keeps them solvent. He goes on to explore interest rate cuts, and warns about the coming recession.
Excess Reserves Decline as Fed Balance Sheet Booms
Excess reserves in the United States are declining rapidly in recent years, but still remain inflated. Mike shows how the Fed is expanding its balance sheet, yet again. Repurchase agreements are soaring as the Fed steps back in. Another sign that quantitative easing has started. To be clear, the US stopped fiat creation in 2014.
Mike talks about US currency creation and then compares it to Switzerland. In response to the financial crisis, the US created about five times the original amount of its currency—but the Swiss created TWELVE times!
The Swiss are working hard to suppress their currency by pegging it to the Euro in a bid to bolster the country’s export market.
While 2008 is nothing more than a distant memory for most, the hangover of unconventional policies remains. Something is plaguing the global financial system. Banks still hold billions in excess reserves and the Fed is back buying debt and expanding its balance sheet. With low growth and high debt, the billions in excess cash sloshing around the system have yet to find a home. If and when things go back to normal is of some debate.