The Federal Reserve (FED) is deflating bank reserves. A year ago, they were $540 billion higher than now. At this time bank reserves are $1,661 billion. The FED has been deflating by not reinvesting in securities when they mature. It has done this to the tune of $345 billion in the past year, causing bank reserves to fall by $345 billion. The term “deflation” applied to bank reserves simply means their amount is being reduced. It does not mean deflation of prices of capital goods, financial claims, commodities or consumer goods. Bank reserves are not money. They are very short-term … Continue reading The FED Deflates