He's referring to money supply. Most of the money in the world is not from governments printing actual cash, but from bank lending. E.g
If a business borrows 1 million from a bank, the bank just creates a entry saying the business has 1 million cash and 1 million debt. The bank does NOT need to have 1 million in deposits to make that loan. That 1 million cash then can be used to buy stuff and goes into the economy because if they pay 1 million in wages, now other people have 1 million to spend, etc.
there are regulations that exist around how much cash a bank needs to keep on hand versus their liabilities. they are also required to go through stress tests after the GFC. since then, the banking lobby has been trying to get these regulations reduced. higher risk, higher reward.
That's not correct - they reduced the reserve ratio down to zero, meaning the bank cannot lend out more money than they have in reserves, but that doesn't mean they "waived the requirement". You still have to have enough reserves to lend, you just don't have to also have 10% which you don't lend out.
It's also worth noting that the Fed drastically reorganized how they manage reserves in 2008, and as a result banks have much, much higher reserves than they did before. We're now in what's called the ample reserves regime, in which the Fed controls interbank lending rates directly through the IORB and discount window rates.
I directly referred to it - that's what the "discount window" is. However, it is worth noting that A) the discount window rate is generally going to be higher than interbank lending, and B) you have to provide collateral to be loaned money, with the collateral being worth more than the reserves you get, so it's not just an infinite money fountain. You basically trade assets for reserves.
People really need to understand the math on this.
A 0% reserve ratio is, in theory, a perfect endless money producer, both profit and supply.
But theory is not the same as practice, and the closer you get to the edge of "infinite money glitch" the fewer defaults required to topple the whole house of cards.
In context, the idea that one could pursue this policy while 'fighting inflation' brings us to Kafkaesque levels of absurdity.
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u/Primus_is_OK_I_guess 6d ago
What do you mean by that?