[roenxi]

> But unlike the prophecies of talking cartoon bears, all this money didn’t drive inflation through the roof and crash the stock market. It doesn’t seem to have really gone…anywhere.

This essay is obviously backed by a lot of thought, but this specific conclusion is a bit glib. Talking of things which are exponential, 2 trillion dollars is a few magnitudes bigger than 2 million dollars. That is more than the annual GDP of most countries.

The banks havn't lost that money under the couch cushions, they will be using it to their advantage. If it is to their best advantage to have it in excess reserves, that probably means something complicated is happening that is letting them make out like bandits.

If they aren't using it to influence the wider economy, we really need to ask what exactly they are doing with it. It is an extraordinary claim that it "doesn't seem to have gone anywhere", implying that somehow it isn't doing something.

[cjmb]

Hey, OP here. Thanks for reading.

For sure, this was a bit intentionally glib. My own understanding of macroeconomics is relatively light, so I linked to two different perspectives on this event and glossed by it a bit.

The point I was trying to make (suggest? raise?) was that regardless of your views on printing $2,000,000,000,000, the crazy Cost-Disease-funded-by-debt does not appear to be a symptom of a banking system gone mad chasing risk (ala 2008). Which means it can rationally go higher still, which means it will keep going higher, past the point where all surplus wealth generated by the median Americans is consumed.

I was just trying understand what was fueling this fire, and whether it was rational or irrational exuberance.

[roenxi]

:D Hey OP.

I didn't put it in my comment because I have no evidence, but my first guess was that the cost-disease-funded-by-debt was exactly caused by those 2 trillion. My instinct is as follows:

* The reserves for fractional reserve banking are excess reserves at the Fed + other reserves.

* Fed is safer than other, so large portions of the banks reserves sit with the fed.

* New money is created by the banks as loans.

* The excess reserves allow massive lending (the multiplier was something like 20x if I recall).

* Banks now have an income stream & massive cash reserves. Actors willing to take on debt push any capitalists smaller than a bank out of capital markets.

Basically, I assume these "excess" reserves are misleadingly labeled and are actually in use relative to the fractional reserve system.

That is obviously a complicated guess with no evidence, and you look like you've put more effort into research than me, but it fails the sniff test that 2 trillion exists and is having literally no impact. I bet it is and it is just complicated enough that it is hard to pin down.