Bernanke gone berserk! Bank reserves explode!

by Martin D. Weiss, Ph.D. 10-19-09
Martin here with the most shocking new numbers I’ve seen in my lifetime.

My conclusion: Fed Chairman Bernanke has dumped so much funny money into the U.S. banking system and has done so little to manage how that money is used, the fate of our entire economy has now been cast under a dark shadow of doubt.

This is not conjecture or exaggeration.

Nor are the underlying facts subject to debate.

They are blatant, unambiguous, and fully supported by the Fed’s own data …


For example, the theory is that if the Fed merely arranges for the U.S. Treasury Department to borrow back most of the excess bank reserves, the Fed could keep the money out of the banks’ hands, prevent them from multiplying it with big lending, and ward off the ultimate inflationary consequences.


But, as pointed out by Econbrowser.com, the reality is that the Treasury is absorbing only a small fraction of the banks’ bloated reserve balances (green area in chart).

The bulk of those reserves (green area) are readily available to start multiplying through lending — and to set off an uncontrollable vicious cycle of too much money chasing too few goods.

The Consequences

This overabundance of high-powered money flooding into the nation’s banking system and money supply can have only one consequence: To cheapen the value of each dollar you own.

Yes, Mr. Bernanke has temporarily tamped down the Wall Street debt crisis. And yes, he has managed to replace fear with greed … convert the flight to safety into the lust for risk … and transform falling markets into rising markets.

But look at the price we are paying: FULL STORY