Commentaries (some of them cheeky or provocative) on economic topics by Ralph Musgrave. This site is dedicated to Abba Lerner. I disagree with several claims made by Lerner, and made by his intellectual descendants, that is advocates of Modern Monetary Theory (MMT). But I regard MMT on balance as being a breath of fresh air for economics.
Sunday 18 October 2015
Dramatic fall in loans as % of deposits at US banks.
The chart is from this Wall Street Journal article.
Basically this just reflects QE, I assume. In a system where (to take the extreme) commercial banks had no reserves, then loans would equal deposits. In contrast, where the central bank feeds $X of base money into the private sector by whatever means (QE or public spending funded by the printing press), then there will be $X of deposits unmatched by loans.
The only thing that puzzles me is why the fall in the loans/deposits ratio has leveled off in the last two years or so: after all QE in those years continued at about the same pace as in earlier years didn’t it?
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