Despite all this, massive excess bank reserves remain unlent.

In normal times, there are valid reasons for paying interest on excess reserves.

But the new Fed policy of paying interest on excess reserves meant that this increased availability of excess reserves did not lead after 2008 to much faster deposit growth and a much larger stock of money.

During QE2 (from November 2010 to July 2011), the Fed added a total of 557.9 billion to reserves, and excess reserves grew by 546.5 billion.

Instead, banks have hoarded the increase in the monetary base in the form of idle excess reserves.

Since reserves in excess of the required amount did not earn any interest from the Fed before 2008, commercial banks had an incentive to lend to households and businesses until the resulting growth of deposits used up all of those excess reserves.

The link between bond purchases and the money stock depends on the role of commercial banks excess reserves.

It should stop paying interest on excess reserves until the US economy returns to a more normal footing.

So central banks are transferring their excess reserves to existing or newly created SWF s, which in turn invest in high return equities.

Indeed, almost all the reserves added in the second and third rounds of QE, more than 95 , are sitting in excess reserves, neither lent nor borrowed and never used to increase money in circulation.

A downshift to this more sustainable pace would provide welcome relief for an economy long plagued by excess resource consumption, labor market bottlenecks, excess liquidity, a large buildup of foreign exchange reserves, and mounting inflationary pressures.

Indeed, the credit channel is frozen and velocity has collapsed, with banks hoarding increases in base money in the form of excess reserves.

But now commercial banks are willing to hold their excess reserves at the Fed, because the Fed now pays interest on those deposits.

The interest rate on these totally safe and liquid deposits induced the banks to maintain excess reserves at the Fed instead of lending and creating deposits to absorb the increased reserves, as they would have done before 2008.

As a result, the volume of excess reserves held at the Fed increased dramatically from less than 2 billion in 2008 to 1.8 trillion now.

The reason is simple while base money is soaring, the velocity of money has collapsed, with banks hoarding the liquidity in the form of excess reserves.

The reason is simple while base money is soaring, the velocity of money has collapsed, with banks hoarding the liquidity in the form of excess reserves.

The credit channel also is not working properly, as banks have hoarded most of the extra liquidity from QE, creating excess reserves rather than increasing lending.

The link between Fed bond purchases and the subsequent growth of the money stock changed after 2008, because the Fed began to pay interest on excess reserves.

The answer seemed a no brainer. So central banks are transferring their excess reserves to existing or newly created SWF s, which in turn invest in high return equities.

Indeed, almost all the reserves added in the second and third rounds of QE, more than 95 , are sitting in excess reserves, neither lent nor borrowed and never used to increase money in circulation. The Fed pays the banks 0.25 to keep them idle.

That means that banks circulated only 2 of QE2 s contribution, leaving the rest idle. Similarly, since QE3 was launched last September, total bank reserves have grown by 244.1 billion, and excess reserves by 239.4 billion meaning that 99 of the funds remain idle.

With 2 trillion in excess reserves, and the prospect of as much as 85 billion added each month, banks receive 5 billion a year, and rising, without taking any risk.

The Fed could, in principle, limit inflationary lending by raising the interest rate on excess reserves or by using open market operations to increase the short term federal funds interest rate.

Italy and Spain would then be able to refinance their debt at close to the ECB s deposit rate, which is currently 1 on mandatory reserves and 25 basis points on excess reserve accounts.

In particular, China has followed a strategy in the past decade or so that entails running large current account surpluses and building up foreign exchange reserves, which are now reported to be in excess of 3 trillion.

China s Excess Capacity Nightmare

Reserves

The small excess of quarks over antiquarks led to a small excess of baryons over antibaryons.

Likewise, the Fed s policy of large scale asset purchases has increased commercial banks excess reserves to unprecedented levels (approaching 2 trillion), and has driven the real interest rate on ten year Treasury bonds to an unprecedented negative level.

And, if the exit occurs via a rise in the interest rate on excess reserves (to sterilize the effect of a base money overhang on credit growth), the ensuing losses for central banks balance sheets could be significant.

A tax on oil, however, does not entail excess burdens. On the contrary, it implies excess benefits .

The country has the world's largest natural gas reserves, the 8th largest oil reserves, and the second largest coal reserves.

Africa s natural gas reserves amount to about 8 of global reserves.

If you relieved the excess demand for financial assets, you also cured the excess supply of goods and services (the shortfall of aggregate demand) and the excess supply of labor (mass unemployment).

Access is good excess is bad.

The sound principle is excess collateral.

(l) Other reserves

(j) Operating reserves

Excess of authority or contravention of instructions

Mill saw that excess demand for some particular set of assets in financial markets was mirrored by excess supply of goods and services in product markets, which in turn generated excess supply of workers in labor markets.

(g) Transfers to reserves

The implication of this was clear. If you relieved the excess demand for financial assets, you also cured the excess supply of goods and services (the shortfall of aggregate demand) and the excess supply of labor (mass unemployment).

Rather, it will increase banks excess reserve balances.

(d) Net excess (shortfall) of income over expenditure