The Fed is lending money to institutions in financial difficulty.
Then, they turn around and sell Treasury bonds and drain reserves form the banking system. The outcome is that the monetary base has been growing very slowly (see graph).
The point is the Fed is much tighter than generally believed. The monetary base should be expanding at a pace close to 6%-7% y/y (its long-term average growth -- see graph) instead of the recent 1.5% y/y.
They should add much more liquidity to the banking system, not just give a helping hand to institutions with problems.
More on https://www.peterdag.com/.
George Dagnino, PhD
Editor, The Peter Dag Portfolio
Since 1977
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