During the past 12 calendar quarters, the Fed has increased the monetary base by 193.7%.
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It is the aggregate value of bank deposits less overdrafts but not the monetary base.
However, the monetary base in the U.S. grew by 81% over those same years.
For example, between 1880 and 1900, the monetary base in Italy actually shrank by 4.8%.
In recent weeks, bank reserves, the monetary base and other monetary aggregates, have grown very rapidly.
Yet many people treat the monetary base as a measure of the money supply.
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First, neither excess reserves nor the monetary base (currency plus bank reserves) are money.
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The country possesses more than enough greenbacks to buy in the entire peso monetary base.
But the relationships between the monetary base, broader monetary aggregates and nominal income is highly unstable.
Sonders pointed out that May saw a 15% year-over-year decrease in the Japanese monetary base.
The chart below plots the velocity of the U.S. monetary base against interest rates since 1947.
But an expanding monetary base will not create inflation if the money is not lent out.
The monetary base in big economies has been swollen by lots of liquidity from central banks.
Unfortunately, the larger the monetary base, the lower the interest rate required for a non-inflationary outcome.
Since 3Q2008, the monetary base has increased by 182%, while NGDP has only risen by 9.5%.
Before the recession began in 2007, the ratio between M2 and the monetary base was about 10:1.
His study documents that a higher Fed Funds rate would increase the velocity of the monetary base.
By adjusting the growth rate of the monetary base, the Fed could raise and lower NGDP growth.
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The most common measure of the monetary base is bank reserves plus currency outside the banking system.
While Japan's banking system remains crippled, faster growth in the monetary base does not boost bank lending.
You can see below the strong correlation between the rising U.S. monetary base and growing gold value.
An increase in velocity means that the same monetary base would support a higher level of nominal GDP.
From 2001-2006, Japan embraced large-scale stimulus, with its monetary base increasing by a mammoth 36% year-on-year at its peak.
The Fed has already more than doubled the monetary base, and eventually the price of everything should rise accordingly.
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One can point to the antecedents of money supply growth increases in the monetary base as evidence that inflation will accelerate.
It restores bank reserves and the monetary base to the levels that they were before the bonds were sold.
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It directly reduces the size of the monetary base and the funds available to the banking system for lending.
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High inflation and slowing growth will constrain further QE, which is inherently inflationary (as it expands the monetary base).
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Holmes said he expects the expansion of the monetary base to continue, thereby supporting gold in the longer term.
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