Comment: reserve requirements DO NOT

(See in situ)


reserve requirements DO NOT

reserve requirements DO NOT restrain leveraging up. banks NEVER look at reserve levels. they look for loan opportunistic and make the loans. if they need reserves, they go borrow them. if the system-wide rate goes above the fed's target, the fed adds reserves AFTER THE FACT. banks are not reserve constrained. if the Fed is targeting a FFR, they are playing catch up to bank money expansion.

however, none of what i just said was necessary since the original dispute was over the mechanical money multiplier claims made by t woods. a dollar of reserves leads to a multiple in loans. this is obviously not true since banks make loans first and then look for reserves later. the banks have trillions of excess reserves. they do nothing with them because they have no role in their lending decision and have nothing to do with how banking works.