The St. Louis FED has a link to Commercial Bank Reserves. You will see that reserves have increased exponentially. This leads me to the motivation for this post.
How easily are people persuaded by the media, their sensory perception, and even their own thinking? I think most would look at this cartoon and believe that it must be true or the cartoonist would not have spent so much time on it. In fact, it's been shown that as much as 20% of eye witness reports in a court of law are inaccurate. Also, interrogators can easily influence the testimony of a witness by using techniques like asking leading questions. Most people don't have the time to investigate everything they see and observe on a daily basis. That's how Bernie Madoff was able to con so many investors. And as P. T. Barnum said so many times, "There's a sucker born every minute."
Economics is about how people go about satisfying their wants and needs as economist Alfred Marshall wrote so long ago. Economics assumes that people act rationally when making decisions. But if their actions are based on false impressions, incomplete data, and a flawed empiricism, is economics anything more than voodoo?
"Securities purchased (and sold) by the Fed, for example, could be absorbing assets that were held by the non-bank private sector or by the banking system itself."
ReplyDeleteBut the Fed's research staff missed the corollary - IOeR's "could be absorbing assets that were held by the non-bank private sector or by the banking system itself."
IOeR's induce dis-intermediation where the financial intermediaries shrink in size -- but the commercial banking system stays the same).