Comment: Your analysis is exactly backwards.

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Your analysis is exactly backwards.

It’s so flawed I don’t even know where to start. Establishing the proper function of banking and loan creation is as good as any.

There is no money multiplier. Reserves don't lead to loans, they are provided with a lag to keep up with bank money creation.

This is complete nonsense. The reserves requirements are a way to curtail leveraging up the banks’ balance sheet with loans. Reserves do lag loan creation, but not for the purposed you stated. In a 100% reserve system…..a bank could not make a loan. In a 50% reserve system a bank could make a loan while maintaining 50% for their reserves…..that loan would be deposited at another bank and that bank could only make a loan of 50% of that deposit. So there is a money multiplier in the form of loans in any factional reserve system.

I don’t have a problem with your description of the Fed Funds market other then it lacks detail for the people that are looking at this to learn…..well not problem until you stated this.

The loan creates a deposit when it is issued, and if loans are growing faster than reserves, reserves are added to hit the FFR target.

By definition of the reserve requirement the loans could not grow faster then the reserves. The banks might do a poor job of maintaining the proper reserves but that is not a product of loan growth but a product of poor management skills.

The Fed Funds system is a two week maintenance operation that allows banks to lend excess reserves or borrow reserves when deficient of the reserve requirement. The settlement date is every other Wednesday night. The Fed is there to act as an intermediary and to control the supply of reserves only as a instrument of monetary policy.The loan growth is insignificant to the operation because by terms of the loan deposit…..a reserve requirement must be maintained. The interest rate targets are a cost of money, controlled by the availability of funds either added to or withdrawn from the system by the Fed either buying or selling repo's & reverse repo’s when the banking system has either excess reserves or short reserves.

Then you said this:
The banks at present have trillions in excess reserves. So much that the Fed has to pay interest on the reserves to prevent the FFR from falling near zero or below its target rate in any case. These reserves have no impact on the demand or issuance of loans.

You are right that the banks do have trillions in excess reserves right not, but the reason is far from what you stated. The reason this is happening is because the Fed is giving the banks time to heal their balance sheets. By buying toxic assets,to the tune of about 3 trillion dollars. the Fed has taken bonds off the banks’ balance sheets that was technically making them insolvent and put cash (FRN) on their balance sheet……or tier one capital, which also carrys a lower reserve requirements but that not the point…….cash is dead weight to a banks. They are getting it free of charge but it’s not earning them anything. So the fed wanted to speed up the healing process so for the first time ever in their 100 year history( oh man we should have 100 year birthday party on Dec 23rd by burning 100 dollar bills), The Fed decided to pay interest on reserves. This is part of “quantitative easing” few understand.

then this:

Lots of central banks have eliminated reserve requirements altogether as they have no impact on lending.
Because they don’t want to hinder lending.

And then finally this:

There is no money multiplier, excess reserves are not inflationary or hyperinflationary. They do not enable loans or lead to loans or credit expansion. Credit expansion leads and reserve provision lags the cycle.
Private bank money comes first and reserves follow. This isn't just theory it is empirically demonstrated and well known.
Don't know why Tom is still promoting this nonsense.

A loan by definition in a fractional reserve system is a money multiplier. If you can exchange the proceeds from the loan for any other good or service today, then you are bringing future purchasing power to the present and taxing the current productive power of the economy. This may not be the definition of inflation but it certainly the result of it, the definition is it is diluting the purchasing power of the current money stock.

Tom Woods knows exactly what he is saying…….you my friend haven’t a clue.