Money Matters Presentation
Bank Reserves &
the Inflation Dog

The Bank Reserves Leash
    Limits how far the inflation dog runs

Bank reserve influence monetary growth (or inflation) in much the same way the leash influences how far this dog will run. (Bank reserves set the limit of bank lending and, thereby, money creation. The increase of reserves does not actually cause money creation.)

Letting out more leash does not make the dog run. (More reserves do not force banks to make loans and create money.)

A short leash gives the appearance of control. The dog wants to run, but cannot get far from the holder of the leash.

The longer the leash the less actual or apparent control. The dog can run near and far without taking up the slack in the leash. (The lower the reserve requirement the less influence excess reserve levels have on bank money creation.)

Today the dog has a lot of slack in his leash, but he does not seem to want to run any farther.


Who holds the leash?

Money Matters


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