680% Inflation?

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Writes Steve Fairfax:

The Federal Reserve has released statistics showing a dramatic change in bank reserves in the two-week period September 10 to September 24.

Banks are now holding reserves that are 268% of requirements. Typically, and as recently as August, reserves are 4 to 5% over requirements.

Banks normally make overnight loans of “excess” reserves to other banks short of reserves. Now they aren’t. In times like these, bankers are like all conservatives: They start to worry more about return OF principal than return ON principal. If they make an overnight loan to the next bank to fail, they might not be repaid in a timely manner, or ever.

This could be the “lockup” that Congressmen have referred to when reporting on the sobering closed-door briefings from the Billionaire Bailout Boys.

There are many other things worth noting. As mentioned earlier, the monetary base had a VERY large increase. It went up by over 7.6% in two weeks!

The Mogambo Guru will be needing CPR!. That’s a very large creation of money, well into hyperinflation territory. Compounding 7.6% in two weeks for 26 periods gives a 680% increase per year.

I’d like to hope that the Fed will reduce the monetary base, but of course that is difficult, and this is an election year, and there are so many good reasons why creating ever greater amounts of money seems like a good idea at the time…

7:16 pm on September 27, 2008
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