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Saturday, March 07, 2009

Fractured Fairy Tales

The M1 multiplier is less than one:

The Demise of Fractional Reserve Banking, by Athenian Abroad: Fractional reserve banking -- the system under which banks hold only a fraction of their deposits in reserve, and lend the rest -- is a bête noire of a certain segment of the economic and political blogosphere. There's something about it that seems dizzyingly insubstantial, self-referential, unnatural, unearthly, and unholy: it's the Financial System from Yuggoth! I don't get it myself, but the metaphysical loathing can be quite intense.

So, for these folks: good news! We don't have fractional reserve banking anymore.

In statistics-speak, since last November, the monetary base has exceeded M1, which means, more or less, that bank reserves (plus surplus vault cash) exceed liquid deposits.

So everything's OK now, right?

    Posted by on Saturday, March 7, 2009 at 12:15 AM in Economics, Financial System | Permalink  TrackBack (0)  Comments (12)


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