Selected in the top 100 Economics Sites

Follow me on Twitter

Friday, October 24, 2008

A picture is worth ....



From Greg Mankiw's Blog: On the right are excess reserves of the banking system. Just below is the monetary base. Go ahead and click on them.



People always ask how today's crisis differs from what happened during the Great Depression. Ladies and Gentlemen I give you exhibits A and B (with thanks again to Phil for alerting me to these graphs). During the Depression the line for the monetary base was as flat as it could be. Now it could not be more vertical.

4 comments:

ArmChairEconomist said...

Dr, I know I have previously brought up the topic of the credit squeeze and you claimed the differeneces in stocks vs. flows to explain the recent record number of commercial loans.

Now, a group of members from the Fed of Minneapolis have a working paper questioning the credit crunch claiming the following common notions (among others) regarding the current financial crisis are both false:
1.Bank lending to nonfinancial corporations and individuals has declined sharply.
2.Interbank lending is essentially nonexistent.

In addition, MJPerry (University of Michigan professor of economics and finance)has been questioning it for nearly a year.

Randall Parker said...

Armie: Give the profession some time to evaluate these claims from some very smart economists. Chari, Kehoe and Christiano are smart cookies. My guess is the paper ain't making it into the American Economic Review. Check out Economist's View on the blog. He has something to say about that paper.

Anonymous said...

I am fairly new to economics and am wondering why are banks are holding these excess reserves? And, how/why did the fed create such an increases in the monetary base?

Anonymous said...

Thanks for the claer up Doc