Banks will help the U.S. economy expand without another extraordinary policy move by the Federal Reserve, according to Michael Shaoul, Oscar Gruss & Son Inc.’s chief executive officer. As the CHART OF THE DAY illustrates, banks reduced the amount of reserves held at the Fed’s regional banks and made more money available to businesses in the past 12 months. The shifts took place even though the central bank’s total assets were little changed, as Shaoul wrote two days ago in a report. “This point is sadly missed by those looking for a new round of quantitative easing,” the report said. Between 2008 and last year, the Fed bought $2.3 trillion of debt securities in two rounds of easing to support economic expansion. Bolstering reserves through a third round of purchases “will not increase the supply of or demand for credit,” the New York-based analyst wrote. Reserves for the week ended July 4 were $179.2 billion lower than their peak last July, according to data compiled by the Fed. The decline coincided with a $171.2 billion increase in commercial and industrial loans, based on central-bank data. “This is precisely how monetary policy can affect domestic activity,” wrote Shaoul, who also helps oversee more than $2 billion as Marketfield Asset Management LLC’s chairman. “What it cannot do is magically increase employment.”
by David Wilson
July 13, 2012
Category: Think Tank
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