Some of what you've said is a little different than what I have read elsewhere, but you make sense, it makes sense. I'll have to read through it again about 100 times or so, but it seems pretty logical.
I do have a question though.
If lending decisions are not based on reserves and banks borrow whatever they need after making the loans to meet their reserves, what happens if no banks have enough reserves and they all need to borrow but no bank has the reserves to lend them? They go to the discount window, correct? Would the discount window operations then be the inflationary force? Since without it banks could collectively lend only what the collective have in reserves?
But further, the discount loan has to be repaid with interest. This interest then would be deflationary?
I guess my main question would be that it all seems to balance in terms of inflationary, deflationary, so where is the inflation coming from and what's the end game?
Want DP delivered to your inbox daily? Subscribe here: