Dear Readers: I apologize for the cluster-foxtrot in sending out the last transcript. It seems my post was too long for Google to handle. So, here is a pdf file that should be easy on your eyes. Open the little icon to the right of the “read now” ribbon, then select “download.” Thanks again for your patience.
HardmoneyJim
Thanks Jim, very informative.
Question1 p16: After asset purchase, the commercial bank sees a 1:1 increase increase in reserves and deposits. Can the commercial bank then use those new reserves to potentially make 10x new loans (ie is there a multiplier effect due to min reserve requirements, and did commercial banks do this)?
Question 2 p16: What happens when the government debt held by the Fed matures and rolls off? Does the process work in reverse: the commercial bank sees a 1:1 decrease in reserves and assets? (and can there potentially be a 10x decrease in commercial loans once those commercial bank reserves go down?) Or does the Treasury have an account directly with the Fed, and as the government debt rolls off, the assets and liabilities on the Fed's balance sheet go down with corresponding changes to the Treasury's balance sheet, with no impact on the reserves at the commercial banks?
Comment regarding student debt: 92% of US student loans are federal loans, and 7.6% are private loans https://www.forbes.com/advisor/student-loans/average-student-loan-statistics/. After 2010 private loans were no longer underwritten and guaranteed by the Federal government; all guaranteed and subsidized loans are now processed and disbursed directly through the US Dept of Education http://www.collegescholarships.org/loans/guaranteed.htm . Conclusion: private banks were crowded out of student loans market 12 years ago, and clearly the blame for the explosion in education costs and student debt rests solely on the federal government.
Duncan Curry