Boring is good.

Once again, this is the graph of excess reserves and the base money supply. While the base money supply has exploded, excess reserves has kept pace. The last time I plotted this out, it looked like the beginning of a possible divergence to the upside. We’re back to boring, which means we aren’t at the point of burning dollars for warmth (sadly, I can’t say much about the predictive qualities of this graph. You probably knew we weren’t currently experiencing hyperinflation).

I just read a paper by Professor (Emeritus) Herbert Grubel about the costs, benefits, and likelihood of success in using inflation as a means of reducing the US debt burden. It discussed the significant excess reserves being held by banks as well as the technical capabilities of the Fed for keeping those excess reserves from causing the M1 to explode. It made me think of this graph. Honestly, I was kind of expecting a little more of an uptick in the green line.

(source: St. Louis Fed: FRED Graph)