Still Not Inflationary

Here’s an update with one of the two graphs I have to make myself because nobody else seems to do it right. This has July data, released last week.

I still see graphs of the Monetary Base used as evidence that we’re going to have big inflation. I also see graphs of the Total Reserves as evidence that the banks are holding onto the money. Nobody graphs the difference between the two. Why not? It is not that hard. You can visually inspect the difference and see that the former is explained by the latter. Simply graphing one or the other doesn’t show it. Granted, the Fed’s graphing tool, FRED, doesn’t actually make such a graph possible (it won’t graph the difference between two series), but you can download the source data. Anyway, it appears as if all of the magical money created by the Fed is sitting on the balance sheets of banks, helping them appear solvent. They aren’t lending it out, so it isn’t being spent or otherwise circulating in the economy. In other words, no impact on prices.

I have mentioned before: it is unfortunate that there is such a lag in this data. If the red line started curving upward beyond the current trend, it would be reason for worry. However, you’d probably notice the effects on your daily life before the data was made available. You wouldn’t need my graph to tell you to panic.