Showing posts with label excess reserves. Show all posts
Showing posts with label excess reserves. Show all posts

01 October 2013

Excess Reserves: No Government Shutdown There


And besides, the Banks own the Fed which is not a part of the government as you may recall.

And by statute the Congress must not skip a single payday or perk. So no problems there either.

Obama is meeting with the Bankers today, who will be asked to help him out with the Congress.

Is Putin coming for the G20 meeting in Washington on October 10-11? Perhaps he can mediate the deadlock amongst the keepers of the world's reserve currency.

We know he likes Super Bowl rings. Maybe he would like a souvenir billion dollar platinum coin ahead of the holiday rush.

I hear the Chinese like bright shiny things and would gladly trade their nasty Treasuries for newly minted billion dollar coins.

Where is Peter Minuit when you really need him?




16 May 2013

As a Reminder, the Fed Is NOT Printing Money


“So that the question is: Would there be any advantage, at this particular stage, in going back to the gold standard? And the answer is: I don't think so, because we're acting as though we were there.

So I think central banking, I believe, has learned the dangers of fiat money, and I think, as a consequence of that, we've behaved as though there are, indeed, real reserves underneath the system."

Alan Greenspan, 20 July 2005

Yes that's right. The Fed is NOT printing money.

It is 'retiring Treasuries' and 'issuing Reserves.'

And everyone knows that Reserves are benign, if not almost meaningless accounting entities. 

Banks just like to collect them.  Like Pokémon cards.

So implies the AngryBear amongst others.

And Mark Dow shows that there is zero correlation between the Fed printing money and the money supply.  And so 'deal with it.'  Hey rube, you obviously don't understand the difference between 'liquidity' and 'credit.'

I thought it was cute that the study went back to 1986, long before the Fed had to resort to  Quantitative Easing, and expanding its Balance Sheet as they are doing today. 

And they are doing it on a continuing basis, and not as an unusual action with regard to secular and isolated liquidity problems.  Unless you want to count chronic insolvency as a liquidity problem.

And the Fed purchases of Treasury debt at non-market prices is just dandy as long as it passes through the hot little hands of the likes of a friendly bank like JPM, who take their vig and then some.

And this chart shown below, printed courtesy of the St. Louis Fed, is just an illusion, so don't look at it.  Seriously.  Don't look at it. Knowledge is bad.  As a reminder, there are two scales on that chart, and the Adjusted Monetary Base uses the lesser scale.

As a reminder:
"In economics, the monetary base (also base money, money base, high-powered money, reserve money), is defined as the sum of currency circulating in the public and commercial banks' reserves with the central bank."
Hey, the Monetary Base includes reserves that the Banks are keeping safe at the central bank.  And the monetary base is the foundation for that leveraged expansion of debt money that is characteristic of a fractional reserve banking system.   What's up with that.  Does the Fed need to get out the liquid paper and correct that?

Here is a link to 'Money Supply: A Primer."

I recall that not long ago, Alan Blinder suggested that the Fed might alter the interest it pays on Reserves in order to stimulate more lending.  But he is just being a party pooper and doesn't understand banking. Or the difference between liquidity and credit.
"The nation's biggest banks have been nursed by the Federal Reserve way too long, former Federal Reserve Vice Chairman Alan S. Blinder said Thursday as he kicked off the tour for his new book, After The Music Stopped: The Financial Crisis, The Response and the Work Ahead.

The Federal Reserve, says Blinder, should stop paying interest to banks for their overnight deposits and should move to charge them for parking money. He says if the Fed set negative interest rates for overnight deposits – in effect charging a fee – banks would have to figure out better ways to make money and one obvious alternative would be to lend more to customers."
Yes I understand these are not 'excess' reserves which is an 'accounting designation' created by the Fed.  It is the Fed that sets the aggregate level of reserve requirements, or the lack thereof, in its role of banking regulator.   And it has quite a bit to say about the quality of the collateral that be used as reserves.  Such as cash, aka liquidity to those ascending masters of finance.  And as I recall they set margin requirements on the equity markets.  But perhaps they no longer do that. 

But this statement by Blinder somewhat 'blows a big hole' in the arguments of those who occasionally come out and lecture us that when the Fed 'creates money' (or liquidity if you prefer) and buys Treasury and Agency Debt from the Banks at non-market rates, it is not really creating money.  It is a benignly useless action.  It simply gives the banks 'cheap liquidity' that they can choose to use as they wish.  I wish they would buy some useless paper from me at non-market rates.  I accept all major forms of payment.

The Banks hold this liquidity, and use it to prop up their zombie Balance Sheets.  I don't think the virtual dollars are sequentially numbered and marked.  So they may also use it, and more properly the vig obtained therein,  and pay themselves bonuses from their leveraged up gambling.  Oh I forgot, Dodd-Frank changed that.  Except for 'hedging.' 
"While banks cannot control the overall level of excess reserves, there are a several ways they can reduce the level of excess reserves on their own individual balance sheets. They can lend excess reserves to other banks in the federal funds market, they can lend them to consumers or businesses, or they can purchase securities. Each of these outlets has been constrained for various reasons since the recession."

Cleveland Fed, The Federal Reserve's Influence Over Excess Reserves
Keep in mind that my argument here is not the true nature of excess reserves, but rather, is the Fed 'printing money' by expanding its Balance Sheet.

Normally the Fed does not have to print money.  The members of the Federal Reserve Banks do that for themselves under their charters with the consent and oversight of the Fed, and subject to the prevailing capital requirements. 

But when the real economy falters, as typified in the recent collapse and the continuing plunge of the velocity of money indicators, the Fed picks up the ball and prints money for the benefit of the economy.  They use this to 'lower interest rates,' except in a liquidity trap which is like pushing a rope. 

I think what some of these helpful pundits are trying to say is that the Fed is not 'printing money' so that it is becoming an inflationary problem.  They are giving that 'money' to the Banks, and they hold it for safekeeping.  And for their gambling stash. And for credit cards and food stamp distributions and other fee generating activities.  And for loans to pay dividends, and fund share buybacks, and the occasional industrial activity.

And among other things it involves the payments on excess reserves that they are giving to the Banks to sit on that money.  And the gaming of the financial markets to which they turn a blind eye.  And the enormous abuses in the financial system which have still not been reformed.

And keep in mind that the purpose of my writing this is not to argue about 'excess reserves' but rather with regard to the question of whether the Fed is 'printing money.'  Yes they are.  The quibble is what is being done with that money, which the Fed is providing in its function as the lender of last resort by buying Treasuries, and sometimes dodgy paper at non-market prices, and providing a subsidy to the Banks in the process. 

That the Banks are NOT getting that money to the real economy in sufficient amounts is another matter perhaps.  There is a difference between liquidity and risk. 

And I think that there is a strong indication that the interest rate policy mechanism of the Fed has broken down because Banks, or at least those holding those Reserves, are not making the bulk of their profits from conventional lending any longer. 

They are making their profits through various forms of private investment and the many permutations of prop trading.  And their lending preferences tend towards further financialization of the economy.  This is the downside of the lack of serious reform.

Click on the subject link 'Excess Reserves' below for more on these Tales from the Vienna Woods (the play, not the waltz) from our financial sophisticates, and sophists, who like to argue what the meaning of is, is.    And there are some related articles and essays at the end that might be useful.

Or just start by clicking here.



Foreign Banks Hold Most Excess Reserves at the Fed - WSJ

Why Are Banks Holding So Many Excess Reserves - NY Fed

22 March 2013

The Fed Is Printing Money, But Where Is It Going? They Know But Will Not Say


[Robert McTeer] worked for the Federal Reserve for 36 years, including as president of the Federal Reserve Bank of Dallas from 1991–2005, where he was known for his plain, jargon-free public speaking and telling stories about growing up in rural Georgia. He has stated that one of his goals was "to translate economic sense into common sense".

As a member of the Federal Open Market Committee on the Federal Reserve, he was considered "dovish" on inflation and was one of the most consistent opponents of raising the federal funds rate in the late 1990s. He has stated that he does not believe in the NAIRU and Phillips curve.
Bob McTeer says with the provocative headline that The Fed Has Not Been Printing Boatloads of Money.  As you may recall, Mr. McTeer was a member of the Federal Reserve for 36 years
"What they fail to grasp is that their initial assumption that the Fed is printing boatloads of money simply isn’t true."
And yet one can look at the Fed's Adjusted Monetary Base, one of the few measures of money over which the Fed has a more direct measure of control, and we see this:



Although those who follow money already know it, the Fed is printing money but that money is going directly to the banks through their methods of purchasing assets from them, both Treasuries and Mortgage debt (which may be of dodgy pedigree).

We see that here in the expansion of Excess Reserves of the Banks.



But Bob McTeer knows Banking, and he knows where most of that QE money has been going.
"Asset purchases by the Fed normally lead to a multiple expansion of money since, at the margin, reserve requirements are only about 10 percent of deposits. The roughly $2 trillion of asset growth from before the financial crisis through QE2 was largely offset, however, by an expansion in excess bank reserves of $1.6 trillion. In other words, the banking system has been sterilizing or neutralizing the impact of the asset purchases on the money supply."
And he knows that this is a form of 'trickle down' approach, and is not stimulating the commercial economy. But it is helping to prop up a banking sector that has never really taken its losses by writing down bad debts, cutting salaries and jobs, and downsizing to a more historical size relative to the real economy.
"The good news is this is why we haven’t had an expansion of inflation or a collapse of the dollar. The bad news is that is also why the purchases have not stimulated economic activity more than they have. The effect seems to be limited to the downward pressure placed on interest rates.

The Fed’s asset purchases have been increasing bank reserves. The Fed adds Treasuries and Agency MBS’s to its assets and pays, in effect, by crediting the reserve accounts of the banking system. But that’s where it has been stopping."
The downward pressure on interest rates isn't doing much. And that is because the US is caught in a modern variation of a liquidity trap, where aggregate demand and organic economic activity has been laid so low by the shock of a massive financial collapse caused by a credit bubble that it cannot rise of its own accord, even with interest rates near zero.
It is true that the Monetary Base, which used to be considered high-powered money because it consists of currency outstanding plus the reserves of the banking system, expands with the expansion of bank reserves. But, with banks hoarding excess reserves as they have been, the Monetary Base has not had its historical impact on the public’s money supply. If one insists on calling the Monetary Base ‘money,’ then it is money that has gone only to the Treasury and the sellers of MBS’s. This has made the financing of our outsized deficit easier and cheaper.
So the good news is that the government is doing all right, and the banking system is in the pink, and even corporate profits are healthy, thanks to tax credits and accounting gimmicks.

The Monetary Base is still high powered money.  That has not changed.  What has changed is that the Fed is paying interest on those idle reserves.  And  the TBTF Banks are still operating like bucket shops using excess reserves and guaranteed deposits.  When they win they keep the winnings, and when they lose, the Fed absorbs their losses.

It is being directed to a powerful and largely unreformed Banking sector.  And that money is being used to fund Wall Street bonuses, speculation in paper assets to create new all time highs in the equity markets, a bond bubble,  the purchase of distressed assets like homes and farmland in huge rent-seeking blocks,  tax subsidies for private hedge funds,

But the real economy languishes.   And this trickle down approach and lack of reform is what is going to cause a serious bout of stagflation, which is a policy error of the first order.  Prices of key goods like healthcare, education, and food are rising with most of the profits flowing to the top one percent, and while wages remain relatively stagnant and jobs growth is aenemic.

But is Bob's major thesis, that there is no inflation problem because M2 growth is lagging so badly because its velocity has been declining?
"What they fail to grasp is that their initial assumption that the Fed is printing boatloads of money simply isn’t true. If it were true, I would join them in their dire predictions. But it simply isn’t true and hasn’t been true throughout this period.

The latest estimates from the Fed’s H.6 Money Stock Measures show M2 growth actually declining since the Fed resumed significant asset purchases last fall. M2 growth in the three months ending in February was 4.6 percent; it was 6.5 percent in the previous six months and 6.8 percent over the previous 12 months. Even this moderate growth is muted by the average decline in M2 velocity of around 3 ½ percent in recent years, yielding a growth rate of nominal GDP of roughly 4 percent per year."


Given the slack state of the economy since the onset of the financial crisis, MZM and M2 growth has still been fairly substantial. So it is a bit disingenuous for Bob to zoom in on a relatively short time frame, from last fall.

Let's indulge him and take a look a variation of this graph using the measure of change Year Over Year in Billions.  This should make the changes easier to discern.


Yes, M2 and MZM are lagging in their rate of increase. But as every economist knows, there is a lag in the transmission of an expansion of the monetary base and the time in which that appears in the broader measures.  The Fed has written many papers on this lag.  And it is true, especially where the Velocity of Money is sluggish and declining, as has been the case of the US, where Velocity has been declining for many years, as hot money sought the high returns of paper asset speculation and gravitates towards certain sectors like tech start ups and housing that can be exploited.

And Bob knows this, and so does Bernanke. Why don't they do something about it?   Bernanke is under some constraints in speaking as the sitting FOMC Chairman, but his actions speak loudly.

Is Bob playing dumb from an ideological impairment like Greenspan, or merely being Socratic in his homespun Georgian manner? 

Why don't more economists push for a reform of the financial system, a return to a commercial, utilitarian banking sector, and an end to subsidies for Wall Street Banks?  Why do they bury their heads in the sand of singular causes like unlimited stimulus, obsessive austerity, mindless privitization and financializaitn, or the arcane details of broken models? 

Why was Volker left to stand alone, while an army of lobbyists undermines even the most modest attempts at reform?

It is all in the credibility trap.   Careerism.  And a lack of genuine leadership politically.

Who is willing to stand up and tell the Emperors of Wall Street and Washington that they are obscenely, bloatedly naked, and draining the life from the people? No one will say, J'accuse. 

And that is why Bernanke is going to probably leave after this term as Fed Chairman, as did Greenspan, before the next bubble bursts in stocks and bonds, and before the next economic downtur and deluge. 

So he can say that while he was in office, technically everything was fine and great progress had been made. And there will be consultancies, and speeches, and honorariums.

Who wants to be a whistle blower these days? Silence pays.



Die DreiGroschen Oper is a 1931 German musical film directed by G. W. Pabst. It was produced by Nero Film, Berlin.


25 January 2013

Alan Blinder: The Fed Should Pay the Banks Negative Interest Rates on Reserves


As I said to the reader who forwarded this, 'you have no idea how much this admission by Blinder means to me.'

This is not the first time he said this, he is now repeating it again more publicly and for the record. That means he sees what is happening and is worried about it. And it is something that is probably not being discussed in Davos, except behind closed doors, and especially not with the financial media's Wall Street spokesmodels.

This is a particular moment to be savored, because at the time that the Fed started paying interest on bank reserves it held, there was quite a bit of hoopla and browbeating by 'professional economists' and some NY Fed people, and their media mouthpieces, about my own interpretation of what it meant, and how those reserves would function, and what they would and would not do. And as I recall a few brave politicians were also rasing the same concerns, only to be beaten down by 'experts.'

The Fed has been pussyfooting around the credibility trap of their own policy failures for quite some time.  This is hard for an academic to do, because so much of their personal currency is based on 'reputation' and the back-scratchers club.

So now the hacks can argue with Alan Blinder, former Vice Chair of the Fed. They may disagree with his policy judgements, but they might find it harder to dismiss his argument with the usual 'he doesn't understand the banking system' approach which they tend to use when they wish to silence dissent.  I took quite a bit of flack for this on the economic blogs comment sections and was fairly disgusted by what looked like a disinformation campaign.

I am no great fan of Blinder, and his own rationalisation of the Fed's actions and the bailout are disturbing. But I will use what I can get and he explodes at least one of the monetary myths that a number of people had questioned, only to be shoved aside.  The actions of the Fed have been all about bailing out the Banks, and in their fear and greed the politicians have gone along with them, both in the US and in Europe.

Paying no interest, or even negative rates on reserves, makes some sense, in motivating the banks to not to sit on their cash and gamble with it in the markets, and prop up mismarked assets, but to find some productive uses for it.

My only concern is that in this currently corrupt system the failure to pay interest or to even charge a fee for it would drive even more 'hot money' into financial asset bubbles in the US and overseas rather than productive loans and real investments in support of growth and recovery and real wages.  This is one of the great drawbacks of the repeal of Glass-Steagall. 

On the bright side, negative interest rates, including negative real rates, are a stimulus for gold which is money in its own right and on its own standing, as my friend Hugo Salinas-Price is often wont to remind us.  And this admission by Blinder gives me the ability to feel even more confident in the rest of my forecasts, provided the government does not do something stupidly draconian out of panic.  Gold is going to go significantly higher in price.  The big players are already positioning for it.

And if these negative rates were applied to what is paid to individual savers and depositors, then that would be even more of a travesty that what is occurring today as prudence and honesty are penalized by policy originating from the monied interests and their public servants. This is a real concern given the lack of serious reform of the system.

It would be like strafing the lifeboats, which is something some financial engineers would do if given the opportunity and the motivation in support of their increasingly convoluted and self-serving policy errors.  

CNNMoney
Making the Case for Negative Interest Rates
By Allan Dodds Frank
25 January 2013

Former Fed official Alan Blinder talks about how to fix the economy, where the next crisis will come from, and how scared investors should be.

FORTUNE -- The nation's biggest banks have been nursed by the Federal Reserve way too long, former Federal Reserve Vice Chairman Alan S. Blinder said Thursday as he kicked off the tour for his new book, After The Music Stopped: The Financial Crisis, The Response and the Work Ahead.

The Federal Reserve, says Blinder, should stop paying interest to banks for their overnight deposits and should move to charge them for parking money. He says if the Fed set negative interest rates for overnight deposits – in effect charging a fee – banks would have to figure out better ways to make money and one obvious alternative would be to lend more to customers.

The book, the 20th by the liberal Democrat economist who is the Gordon S. Rentschler Memorial Professor of Economics and Public Affairs at Princeton University, defends the U.S. government bailout prompted by the financial crash in the fall of 2008 as a job well done, while critiquing it as a misunderstood rescue that could have been done more cleanly. Blinder tries to adopt the perspective of middle class Americans who remain angry that the big banks stayed afloat with public money while doing little to help their retail customers during the bail-out...

Sparing no sitting ducks, Blinder blasts former President George W. Bush, former Treasury Secretary (and Goldman Sachs (GS) co-CEO) Henry "Hank" Paulson and their successors – President Barack Obama and Treasury Secretary Timothy Geithner - as communications failures whose collective silence about what was really going on amounted to public disservice. (And where wasMr. Blinder when all this was happening, from Greenspan to Bernanke? - Jesse)

While citizens fail to understand the positive role the Federal Reserve played [sic - literally], Blinder also says people have a right to be angry about the ongoing practice that encourages banks to keep their deposits out of general circulation(The Fed's failure as bank and market regulator is epic - Jesse)

"I have been advocating – and have not yet quite convinced (Federal Reserve Chairman) Ben Bernanke, although I am still working on it - that the Fed should lower, first to zero and then probably to negative, the interest rate it pays banks for holding reserves at the Fed," Blinder said Thursday. "When I want to be polemical about it, I say things like: 'My bank pays me one basis point on my checking account. Why are you paying my bank 25 basis points on their checking account?...'"


23 July 2012

About Those Excess Reserves At the Fed


"Some men weave their sophistry until their own reason is entangled."

Samuel Johnson

IOER is Interest On Excess Reserves.

The next time some economist says that paying interest on Excess Reserves does not matter, show them this newswire copied below, and let them argue it with Alan Blinder.   San Francisco Fed President John C. Williams made a similar argument about four weeks ago. And Bernanke concurs that this is a powerful weapon in his mad scientist's toolkit.

But then we see pieces in the financial press or on econo-chatboards like this, scornfully dismissing the notion that interest payments on excess reserves matter at all because the excess reserves don't matter.  Base Money Confusion by Izabella Kaminska.

I have even seen the Fed arguing out of both sides of their mouth on this one.  I know there is room for disagreement, but that is just a bit too much. This is like one of those nice little jargon related sophistries that engineers like to use to make annoying marketing managers go away in despair.

I suspect that some economists argue that Fed interest payments on reserve do not matter because they do not want to deal with the political issue of paying what is essentially a subsidy to the banks for the reserves that the Fed creates for them.

And there are plenty  of economists who seem to make whatever argument that the Banks want them to make on any issue on any given day. It seems to be almost a cottage industry at some university economics departments.

Or in some cases it could be that like most money misconceptions, some folks like to get caught up in the details of the thing, putting an inappropriate linear bustier on a dynamic system process, and thereby become mesmerized by 'chicken and egg questions,'  losing sight of the big picture but 'proving' some outlandish theory about how money is created and how the banking system really works.

If reserves do not matter, if they are a meaningless accounting entity, then it would not matter what the Fed pays on them, except for the purposes of a risk free handout to their banking buddies.  And there may be a valuable insight in that after all.

Regardless, I would just like the Fed to make up its collective mind what their position on this really is, and not trot out whatever argument they feel suits the moment, although that does seem to be à la mode amongst economists these days. They have become as bad as attorneys and accountants.  The truth is whatever we say it is, whatever the guy with the most money wants it to be.

This might be a fine question for some astute Congressperson to pin Benny down on for the record the next time he stops by for a chat. I seem to recall the NY Fed dissing a Congressperson on this matter a few years ago when they suggested that paying interest on Bank Reserves was inhibiting the flow of money out of the banking system and into the real economy.

So the next time I get into a discussion on this with some condescending obscurantist from the NY Fed, I am just going to send them this link and let them have at it with Ben, Alan, John and the other Sorcerer's Apprentices of finance who, like Alice's souffletic friend, choose to define reality to suit their changing needs.

08:12 Former Fed Vice Chairman Blinder says Fed should cut IOER -WSJ

Former Fed Vice Chairman Alan Blinder, in an opinion piece, said the Federal Reserve has many weapons left to provide a boost to the economy, but the most powerful tool would be lowering the interest rate on excess reserves (IOER) held by banks.

Blinder said Operation Twist, QE3, and forward guidance are weak weapons that won't be as effective as cutting the IOER to zero, and if nothing goes wrong, to -25bp.

He argues that doing such would provide a powerful incentive for banks to put some of their idle reserves to work, possibly lending it out or putting it in the capital markets.

Fed Chairman Ben Bernanke said last week that the Fed still has a number of tools available should it decide to implement additional stimulus, including its balance sheet, communications strategy, IOER and the discount window.

Postscript: By the way, I do understand how Excess Reserves are created, and why that really is not relevant to the discussion of paying modest interest on them. I can be playful too.

It is more a matter of the Fed taking extreme measures to cover up the rottenness of the assets on the Banks' balance sheets and their real insolvency, whilst providing them the equivalent of monetary food stamps.

The best argument against Blinder's plan is that since the market is already willing to buy short term Treasuries at negative interest rates, why would not paying interest on excess reserves, or even charging a modest amount, cause the banks to reduce their reserves? Especially when they have access to the gaming tables thanks to the repeal of Glass-Steagall. Easy money chases beta.

It *could* drive more short term money into the longer end of the curve which is another one of the Fed's fruitless attempts to provoke the real economy by imitating vitality.

What makes this problem difficult is not that it is some advanced form of maths, but that it is so enshrouded with prevarication, privilege, fraud, and the other trappings of the credibility trap and a self-serving elite who abuse their good fortune and their talents.

11 October 2011

Adjusted Monetary Base Less Excess Bank Reserves



Thanks to my friend Gary at NowandFutures.com for this chart.

I like to think of the expansion of the monetary base as it has been implemented this time, versus 1933 , as a large animal passing through the body of a python.

Who knows what might come out after the banks are done digesting it.

In the second version of the chart below I have merely added a simple trendline.

Absent lending and a velocity of money the added liquidity at cheap rates, is perhaps little more than a subsidy and crutch to the zombie Wall Street banks.

More simply, the expansion is an artifact of the bank rescue and the assumption of bad debts and others financial obligations at above market prices, and not a program targeting the real economy. It is a variation on the efficient market and trickle down theory. Give the banks plenty of liquidity and they will lend it. No, they will take the Fed's riskless interest for the most of it, and gamble with the rest, demanding more guarantees, subsidies and benefits every step of the way.

Yes, the Fed has a 'blunt instrument,' but it is not as blunt and clumsy as Greenspan put forward, for example. The Fed has been primarily concerned with the banking system and its prosperity, both as monetary policy center and in its key role as regulator, and repeatedly allowed and even led the financially naive into trouble.

And they too often have responded to legitimate criticisms and questions from the Congress and the people with appeals to secrecy and snarky misdirection, abuse of their jargon, and the other things that serve to hide their actions.

So with the Fed inflating selectively on the banking side, without exercising vigorous oversight on the financial system, and the median wage languishing in the real economy, a forecast of stagflation, which is always and everywhere the outcome of policy error or exogenous shock, appears probable.
"Significant changes in the growth rate of money supply, even small ones, impact the financial markets first. Then, they impact changes in the real economy, usually in six to nine months, but in a range of three to 18 months. Usually in about two years in the US, they correlate with changes in the rate of inflation or deflation.

The leads are long and variable, though the more inflation a society has experienced, history shows, the shorter the time lead will be between a change in money supply growth and the subsequent change in inflation."

Milton Friedman
This is much more than a liquidity trap. The financial system is broken. It is corrupted and distorted, and it is acting like a weight on the real economy.  And the banking system has been broken since 1990's.  Perhaps broken is not quite the right word since it implies some accident and not a willful campaign of intent.

You can pour monetary stimulus into this corrupted system as the Fed did in the first decade of this century, and the results will be the same: financial asset bubbles, corruption, fraud, increased public debt, and a widening gap between the wealthy few running the system and the public who are paying for it.  The only thing good about stimulus is that it is better than austerity, if both are intended to sustain the unsustainable. 

Stimulus without reform is a waste, but austerity without reform is insane cruelty.

The message of OccupyWallStreet is fairly clear, but the status quo cannot hear the message: 'The Emperor has no clothes.' And today on Bloomberg the response was, 'They hate us for our prosperity.' What the protesters are saying is that the system is broken, we have lost confidence in it, and we want the change and reform that we voted for in 2008 and were never given.

To paraphrase Tacitus on the status quo of empire, "To ravage, to slaughter, to usurp under false titles, they call freedom; and where they create a desert, they call it prosperity."