One picture speaks 10,000 words . . .
but I'll add a few anyway:
- The Fed has created $2.2 in new money since the 2008 crisis
- About half of this money is currently parked in the Federal Reserve by banks and is collecting interest
- Much of the other half of this money is sitting on banks' books to shore up new reserve requirements.
- Hence, the remainder of the money outstanding is changing hands more slowly than at any time in the past 50 years, meaning banks are not lending as readily as they have in past good times/bad times. Nor are consumers borrowing and spending as they once did
- As consumers pay off debt, money is "retired" and goes to money heaven
- When money is retired and evaporates to money heaven, it cannot be used as a basis for more fractional reserve lending. Hence, new money must be created with the hope banks will finally get up off that money and lend it to people who will start consuming again and increasing the exchange of said money (i.e., a pick up in "velocity" of money exchanges). We are a nation now addicted to consumption to boost GDP. Savers are anti-American.
- Hence the Fed will continue to create new money to try and get the banks to lend and the consumer to borrow and spend. Bernanke's heir apparent, Janet Yellen of the San Francisco Federal Reserve Bank, is already signalling she will focus on GDP growth as much as lower unemployment. To reignite growth, money must start circulating at a faster velocity.
- Hence, keep your eyes on this chart for any uptick in the near future
- Meanwhile, bet on QE to continue well into 2014 as M2 shows no basing as of yet on this chart
