Thanks for the article guys! Liquidity seems to be a problem of late even for equities. Does the federal reserve print money, or does it print bank reserves? I.e. who is actually responsible for increasing the amount of money in "circulation"? Bank reserves would mean that banks are responsible for increasing money supply via credit, which may not be correlated to bank reserves? Trying to wrap my head around this idea, especially since the Euro dollar seems to be inverting, meaning less liquidity in the near term? What is the more relevant metric?
The Fed can't raise the velocity of money. All they can really do atm is QE - Printing money to buy bonds, lowering the yield of bonds thanks to a constant bid and shifting investors to higher risk assets as they hunt higher potential yields.
As you mention, commercial banks can print a sort of private money issued as debt, that tends to filter more into the real economy, but I believe they've been reluctant to do much lending as of late, or people aren't interested in borrowing. Either way, M2V, or "money in "circulation"" stays low.
Thanks Will, trying to figure this out now and looking for input, but not my wheelhouse. This episode with someone who managed fixed income at a bank was very illuminating:
Highlighted why 2020-2021 actually saw massive monetary inflation as well, direct checks to families, and government "forced" banks to make loans to small biz by taking on the liability risk. Good to know im not going down the wrong rabbit hole on this.
Thanks for the article guys! Liquidity seems to be a problem of late even for equities. Does the federal reserve print money, or does it print bank reserves? I.e. who is actually responsible for increasing the amount of money in "circulation"? Bank reserves would mean that banks are responsible for increasing money supply via credit, which may not be correlated to bank reserves? Trying to wrap my head around this idea, especially since the Euro dollar seems to be inverting, meaning less liquidity in the near term? What is the more relevant metric?
The Fed can't raise the velocity of money. All they can really do atm is QE - Printing money to buy bonds, lowering the yield of bonds thanks to a constant bid and shifting investors to higher risk assets as they hunt higher potential yields.
As you mention, commercial banks can print a sort of private money issued as debt, that tends to filter more into the real economy, but I believe they've been reluctant to do much lending as of late, or people aren't interested in borrowing. Either way, M2V, or "money in "circulation"" stays low.
Thanks Will, trying to figure this out now and looking for input, but not my wheelhouse. This episode with someone who managed fixed income at a bank was very illuminating:
https://podcasts.apple.com/us/podcast/interview-with-macro-alf-on-banks-money-macro/id1506469669?i=1000552614568
Highlighted why 2020-2021 actually saw massive monetary inflation as well, direct checks to families, and government "forced" banks to make loans to small biz by taking on the liability risk. Good to know im not going down the wrong rabbit hole on this.