Investing in precious metals 101

smoking gun for the private debt bubble?

  • Fri, Apr 10, 2015 - 02:36pm

    #2

    davefairtex

    Status Diamond Member (Offline)

    Joined: Sep 03 2008

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    smoking gun for the private debt bubble?

Here's a fun chart I created just today.  It takes the total loan book of all commercial banks (LOANINV) and divides it by the required reserve balances (REQRESNS) by the Fed.  Its pretty wild.

Back in the day (i.e. before 1960) the Fed required a 10:1 reserve ratio for commercial banks.  Perhaps that is where the "10:1" money multiplier myth came from: 55 years ago, it was actually true!

But check out what happened next…a year passes, then a few more, and then: Holy Christmas, a ratio of 219:1 at the peak of the bubble in 2008!  Not a particularly onerous requirement to meet.  That's a growth of 21x.  Of course, if you are run by a group whose theories do not consider banks, debt, or money – who cares about a reserve ratio anyway?  No need for limits on banking, just let the free market sort it out.