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Reserves, Loans, and How Money Really Gets Into The Market 1/10/22

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1 hour ago, potatohead said:


Congrats on the interview again. So glad to see a high number of views in such a short period of time. Would love to see a short interview discussing the mechanics of QE. There are very few that understand this topic as well as you. 

Thanks again PotatoH! 

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Here's what I love about Europe. Even Warsaw in the center.

You need a few things. So you walk out your front door, turn left, walk across the park and down the street to the grocery store for some green tea and cocoa powder.

Then you cross the street to the fish store for some fresh jellied salmon in a jar with carrots and onions, and a slab of fresh salmon filet to throw in the pan for dinner.

Then two doors down to the produce stand for some bananas, raspberries, apples, and tomatoes.

Then walk down the street past some pleasant shops, restaurants and bakeries. Oh the bakeries. I didn't need bread, but if I did, the variety is endless, it's fresh every day, and a personal sized loaf will cost about a buck. Not the $7 you pay at Panera for something not even as good. 

Then walk across the park from the other direction, up 100 steps up the hill, and back home. All in 30 minutes. You spend about $20. You get everything you need. You spend nothing on gas or electricity. You waste no energy. You support local small businesses. And on top of it all, you get great exercise without even thinking about it. 


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Buttcoin bulls know that if they lose the handle at 39,677, it would complete a massive head and shoulders top pattern with a conventional measuring objective of 11,000. 

Ultimately on its way to approaching zero, where all crypto will eventually settle. 


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"Printing" is a term of art. Saying that the Fed isn't printing money is a pointless semantic argument. Technically, they're not printing it in the Primary Dealer trades that comprise Open Market Operations aka POMO or QE. They're just creating it by crediting the dealers' deposit accounts at the Fed. So it's not printing. It's an electronic account credit. It's definitely money though. It is transmitted to the various M's within a week or two of the originally Fed credit to the dealers' accounts which sold the paper to the Fed.  

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1 minute ago, potatohead said:

May need to call in a life line......😄

I don't want to go there. Arguing with polemicists is a waste of time.  But you can quote anything I say here. Without attribution. 😄

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The idea that dollars are locked into the system is misleading. They move freely around the system in bank to bank transactions in all kinds of economic and financial transactions.

Arguing that the money is "locked in" shows a failure to understand elementary accounting. The money is recorded in two places under basic accounting principles. As cash assets of the individual banks and as a deposit liability of the Fed to the banks. 

You see the cash asset in the aggregate on the Fed's H8 weekly commercial banking system Assets and Liabilities report. Total cash assets of the banks is Table 3 Line 29, $4.0 trillion as of December 29. You see the liability on the Fed's H41, table 5 Liabilities, Other deposits held by depositary institutions, $4.0 trillion last week. 

Since the reserve requirement is zero, these bank cash assets are entirely excess reserves. There's no restriction on what the banks or dealers can do with them. They can invest in whatever they want with them, Basel III Liquidity Ratio requirements notwithstanding. A 3% liquidity requirement on less liquid assets is hardly limiting. 

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