Quotulatiousness

October 18, 2019

The State of the US is Depressing | BETWEEN 2 WARS I 1933 Part 2 of 3

Filed under: Economics, History, USA — Tags: , , , , , — Nicholas @ 04:00

TimeGhost History
Published 17 Oct 2019

The American economy is in a state of despair. Mass unemployment and poverty sweep the lands. In 1933, a new President is elected, promising to change things for the better. His name is Franklin D. Roosevelt.

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Hosted by: Indy Neidell
Written by: Francis van Berkel and Spartacus Olsson
Directed by: Spartacus Olsson and Astrid Deinhard
Executive Producers: Bodo Rittenauer, Astrid Deinhard, Indy Neidell, Spartacus Olsson
Creative Producer: Joram Appel
Post-Production Director: Wieke Kapteijns
Research by: Francis van Berkel
Edited by: Wieke Kapteijns
Sound design: Marek Kaminski

Colorized pictures by Norman Steward, Daniel Weiss and Joram Appel.

Sources:

A TimeGhost chronological documentary produced by OnLion Entertainment GmbH.

From the comments:

TimeGhost History
12 minutes ago (edited)
If you’re new here, you might not be familiar with Indy Neidell and his other work. Not only are we doing “Between Two Wars”, on the events and years leading up to World War Two (of which this video is a part), also we’re covering World War Two in realtime week-by-week, exactly 79 years after it all happened. We have now entered the second year of the war. If you haven’t already, check out the World War Two Channel for what maybe one day will become the most complete account of The Second World War: https://www.youtube.com/c/worldwartwo

Cheers,
Joram

October 17, 2019

England in 1550 was a remarkably unpromising location for the later industrial revolution

Filed under: Britain, Economics, Europe, History — Tags: , , , , , , — Nicholas @ 03:00

Anton Howes, in his investigations on the Industrial Revolution looks back in time to see where or even if England deviated from the rest of Europe in ways that made the revolution possible, thinks he’s located the crucial time:

If a peaceful extraterrestrial visited the world in 1550, I often wonder where it would see as being the most likely site of the Industrial Revolution – an acceleration in the pace of innovation, resulting in sustained and continuous economic growth. So many theories about why it happened in Britain seem to have a sense of inevitability about them, but our extraterrestrial visitor would have found very few signs that it would soon occur there. There were many better candidates, on a multitude of metrics.

[…]

But England in 1550 was by global standards quite poor. Historical GDP per capita measures are notoriously difficult to obtain, even for some countries in the twentieth century let alone the sixteenth. The historical GDP per capita of England – by far the most studied region – is still hotly debated among economic historians. Nonetheless, according to the most recent collection of estimates – the Maddison project’s database of 2018 – in 1550 our extraterrestrial visitor would have been much more interested in Belgium. England at that stage lagged behind almost all of the areas for which we have estimates: Holland, Spain, Italy, Sweden, and France. In 1600, it was behind Portugal and India. Here are the figures in 2011 dollars; the colours are by row:

Such estimates should of course be taken with a hefty boulder of salt. (Note, also, that these particular figures, called “CGDPpc”, are something of an innovation by the team compiling the Maddison Project Database – they use multiple benchmarks to improve how we compare countries’ relative incomes in any particular year, which comes at the cost of not being able to compare their growth rates, for which there are separate figures. In other words, you should read the figures by row, not by column.) But it is worth noting that the more recent research on historical GDP per capita, finally filling in some details for regions other than England and Holland, often results in those other countries seeming richer in the sixteenth and seventeenth centuries. The more we know, the more the traces of an early English divergence seem to disappear.

Even without access to such statistics, however, our visitor would have noticed that in the mid-1550s England suffered severe food shortages. Indeed, the threat of famine would be present right up until the beginning of the eighteenth century: there was a major famine in the north of England in 1649, and even a famine in the 1690s that killed between five and fifteen percent of Scotland’s population. Britain would one day become perhaps the first famine-free region, but that did not occur until much later, when innovation had already begun to accelerate. It may even have been its result.

And England in 1550 was not just poor; it was also weak. If our visitor thought, as some historians do, that conquest and exploitation were essential for future growth, then it was Spain that had the major overseas empire, followed by Portugal. England in 1550 had no colonies in the New World, and its attempts to found them all failed until the seventeenth century, by which stage the Dutch and French had also begun to extend their own empires too. It was not until the eighteenth century that Britain began to exceed them.

October 15, 2019

The Fed as Lender of Last Resort

Filed under: Economics, USA — Tags: , , — Nicholas @ 02:00

Marginal Revolution University
Published on 1 Aug 2017

If you heard a rumor that your bank was insolvent (in other words, it had more liabilities than assets), what would you do?

A typical reaction is to panic. What if you can’t get your money out? Your next step would likely be to try and get all of your cash in hand.

The rumor could even be false, but if enough people responded as if it were true, it would still spell trouble. Even solvent banks can have illiquid assets. If the bank can’t pay out to its depositors, the panic can spread.

This is where the Federal Reserve System comes into play. The Federal Deposit Insurance Corporation (FDIC) insures deposit accounts. And, if the insurance isn’t enough or the financial institution isn’t covered, the Fed can act as the “lender of last resort” – it can loan enough money to a bank to cover customers who want their cash.

Why does this happen? Well, panics can be a threat to the entire banking system. If one financial institution falls, even if it is insolvent, it can have a domino effect.

If you think through very recent U.S. history, you’ll quickly come up with some examples of the Fed intervening. During the 2008 financial crisis, the Fed, along with U.S. Treasury and FDIC, stepped in to “bail out” insolvent U.S. financial institutions to minimize systemic risk.

But what happens when you know that the government will clean up the mess if you make risky investments? This is certainly a big problem facing the Fed. We’ll discuss the consequences in detail in this video.

October 9, 2019

Election 2019 is “the most miserable, dishonest, venomous, pandering and altogether trivial exercise in multi-partisan misdirection since the last one”

Filed under: Cancon, Economics, Politics — Tags: , , , , , — Nicholas @ 03:00

Andrew Coyne curses both houses in his comparison between the Milk Dud’s Conservatives and Blackface Justin’s Liberals:

Justin Trudeau with dark makeup on his face, neck and hands at a 2001 “Arabian Nights”-themed party at the West Point Grey Academy, the private school where he taught.
Photo from the West Point Grey Academy yearbook, via Time

The platforms the parties have seen fit to put on public display — those of them that have deigned to present a platform — range from the absurdly unambitious (free museum passes, anyone?) micro-baubles of the Liberals and Conservatives to the utopian free-for-alls of the NDP and the Greens.

If the latter may be discounted as the fantasies of the unelectable, the former are scarcely to be taken more seriously, such is the record of broken promises of both parties once in office — of which the most damning evidence is surely the Liberals’ trumpeting of a book by two dozen academics, published shortly before the election, that found they kept roughly half of their promises from 2015. As defences of integrity go, “what about all the promises that weren’t broken” is not among the more convincing.

That credibility gap — the Liberal platform has the gall to include forecasts for the deficit — may explain why the parties have been less concerned with telling Canadians what they would do in power than with making up stories about what their opponents would do. The Liberals have spent much of the first part of the campaign suggesting a Conservative government would legislate on abortion; the Tories seem bent on spending the rest pretending the Liberals would tax the capital gains on people’s homes.

Or never mind the future. The parties seem unable to tell the truth even about the recent past. Conservative Leader Andrew Scheer has falsely claimed that British Columbia’s carbon tax “isn’t working” (studies estimate the province’s emissions are five to 15 per cent lower than they would be without the tax), that Canada gives $2.2 billion annually in foreign aid to “middle- and upper-income countries” (the correct figure is closer to $22 million) or that 95 per cent of Canadians already have prescription drug insurance (10 per cent have none, according to a report by the Commons health committee, while another 10 per cent are under-insured).

As for Justin Trudeau, he and his spokespersons have confined themselves to misleading the public about the Conservatives’ tax cuts (a cut in the 15 per cent base rate is hardly “for the wealthy,” even if the wealthy woulds get some benefit from it), or their record on health care transfers (transfers under the Harper government were not “cut” or “frozen,” but increased by nearly six per cent per annum). Oh, and about his part in the SNC-Lavalin affair, up to and including his muzzling of witnesses who might wish to tell their stories to the RCMP.

The Liberals, then, have failed to make a case for their re-election, while the Tories have failed to make the case for why they should replace them. To say this — or to note that their platforms have more in common than they have serious differences — is to risk the ire of partisans of both, who are heavily invested in the idea that this is an election of great import, as they are generally in the idea that politics is a noble calling filled with honourable men and women who keep at least half their promises.

Andrew Scheer meets British Prime Minister Theresa May
Photo via Wikimedia Commons

October 8, 2019

Sarah Hoyt on the “rough music”

Filed under: China, Economics, France, Media, Politics, USA — Tags: , , , , , — Nicholas @ 09:00

Sarah Hoyt borrows a notion from Terry Pratchett’s Discworld series to explain a real phenomenon in our world:

Pratchett’s “Witches” world was so similar to my own, from jumping over fires to get married (not legal in my day, but there was memory of it) to various local folk superstitions, that it was always a surprise when he pulled something I’d never heard of.

One of these is the “rough music.”

When someone has done just about enough that a small village can no longer put up with him, the men in the village get together and play a barbarous and terrible music as they nerve themselves up for the barbarous and terrible things they have to do.

In Europe — hell, all over the rest of the world — the rough music is playing. Just because no one is reporting on this, it doesn’t mean it’s not going on, and growing, and nerving itself up to … something.

The level at which the Gilets Jaunes have been under reported is extraordinary, except that it hasn’t stopped the uprising either.

(And now I think about it, how much do we see in main stream news about Hong Kong? And it hasn’t stopped the uprising either.)

[…]

So, let’s talk about the rough music. Sure, you can hear it. I can hear it too. The stomp and the drumming can be heard all over the world.

That which can’t go on, won’t.

But I implore you to stop and think: if the rough music plays, what comes after?

There might be no hope for Europe, but Europe’s … ah … how do we put this? Europe’s tenets, their stand before the world, an improvement as they were on everything before them, are not ours.

Even in Europe I suspect when this bursts — and there it will burst. The elites flaying and screaming is only making it worse — you’re going to see things that will make you wonder why on Earth good American boys died in WWII. Because we’re about to get National Socialism, the sequel. National because they’re getting tired of the international elites (and who isn’t) and socialism because the poor bastards have not experienced anything else their entire adult lives.

It will happen. It is necessary. The EU was probably one of the most bizarre ideas in the history of bad ideas. The way it’s run which essentially steals the franchise from ordinary people was just the old style “good families” coming back into power through a back door.

But what comes after will probably be horrific. If we’re all lucky it will also be briefish and like France after the revolution they’ll find their way to something slightly less insane. With or without Napoleon and Europe wide war? Ah … that’s where we need to talk.

First however, let me say that hearing the rough music from the rest of the world is starting to echo here. We see what’s going on there. And we hear strange and stupid stuff, like the “whistleblower of the day” and an impeachment without voting and of course, pancake-gate.

Faced with that kind of behavior you obviously think “It’s insane.” And “We have to stop it.”

October 6, 2019

Finally a reason to climb on the impeachment bandwagon

Filed under: Economics, Government, Humour, Politics, USA — Tags: , , , , — Nicholas @ 05:00

Andrew Heaton, in his latest newsletter, explains why he’s finally come down on the side of impeaching President Trump:

Okay, here’s the main thing I wanted to talk to you about: America is about to slap a TWENTY-FIVE PERCENT tariff on scotch. The underlying story involves the WTO and Airbus, but I think I can save everybody a lot of time by pointing out that our president is a mouthbreathing protectionist who’s too lazy to read Adam Smith’s wikipedia page.

Here are a few things to consider:

  • Tariffs are just taxes, designed to punish you for having the gall to buy something from a foreigner.
  • This will hurt Scottish distillers, and potentially price out distillers with low profit margins.
  • I might have to switch to wine on dates.
  • We have now spent more money needlessly bailing out farmers from a trade war with China than we did bailing out banks under Bush.
  • We’ve known about the idiocy of tariffs since The Wealth of Nations came out in 1776.
  • Trump, a man lacking an ideological core, for reasons which boggle the mind, seems to genuinely believe tariffs and protectionism are good things, as he has maintained since the 80s.

Chances are if you subscribe to this newsletter you’re not a teetotaler, but on the off chance you are, allow me to make a case against whisky taxes even if you are not personally apoplectic about a tax hike on Laphroaig. (A concoction personally invented by Almighty God. It’s like you’re drinking a campfire. Try it.)

There’s an old saying: when goods don’t cross borders, armies do. I concur with this. In fact my largest contribution to the field of economics (Nobel Prize forthcoming) is Heaton’s Peace Through International Mistresses Theory.

My groundbreaking idea is that we want to have an interconnected, global economy with lots of transnational trade, because businessmen will be less supportive of bombing cities their mistresses live in. When trade wars happen, international trade collapses, and suddenly businessmen are flying to Berlin and Paris a lot less. Pretty soon we’re firebombing Tokyo.

It would probably be more appropriate of me to dedicate my political analysis to the forthcoming Ukraine/Trump/Biden/Impeachment circus which will dominate our lives for the next few months. However in my case I don’t need to. The president has messed with my scotch. Now it’s personal. I’m all in.

Impeach the guy.

#FreeTrade

You can subscribe to Andrew’s email newsletter here.

October 5, 2019

Legends Summarized: El Dorado

Filed under: Americas, Economics, Europe, History — Tags: , , , , , , , , — Nicholas @ 06:00

Overly Sarcastic Productions
Published 4 Oct 2019

El Dorado! A shining golden city packed with promises of wealth, power and everlasting glory. An unspoiled paradise deep in the jungle, the PERFECT destination for treasure-hunters and anthropologists alike. Something that perfect is something EVERYONE wants to be real.

Aaaaand that’s the trick, isn’t it? Wanting something that badly isn’t healthy. Just ask the conquistadors!
(Oh wait, we can’t – because so many of them died on fruitless quests for El Dorado. And also it’s been five hundred years and they’d all be dead anyway)

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Losing our religion

Filed under: Economics, Environment, Religion — Tags: , — Nicholas @ 03:00

Arthur Chrenkoff found another report on the inverse relationship between development and religious belief:

A few weeks ago I wrote a longish blog post arguing that for many people in the developed world environmentalism has become a religion, filling up the gap in spirituality left by the decline of Christianity. I don’t claim any originality or new insight in this observation; it has been noted many times before, including by my friend, former artilleryman and now man of God, Rev Donald Sensing, and it has made an appearance quite a few times subsequent to my piece, a propos Greta Thunberg’s performance at the United Nations and the reaction it inspired around the (developed) world.

Today, I chanced upon another interesting analysis by Pew Research Center, about religious belief and commitment around the world. Results are not surprising but are nevertheless interesting, including this world map:

Unfortunately, Pew does not provide additional data on those for whom religion might be “important” or “somewhat important” so as to paint a slightly fuller picture of religious sentiment, but the results illustrated above are probably quite indicative. The developed world is well and truly secular now, with the United States and Greece being the only outliers (and by a long mile), while most of the developing world (with the notable exception of China after seven decades of communism) remains extremely religious. Thus, Pew notes that “if current trends continue, countries with high levels of religious affiliation will grow fastest. The same is true for levels of religious commitment: The fastest population growth appears to be occurring in countries where many people say religion is very important in their lives.”

As the main topic of this Pew study is the age gap in religious faith around the world, it should be noted that the younger generations in the developed world are even less religious than their elders, often significantly less, putting the already low rates across the West in an even starker perspective (by contrast, throughout most of the developing world, there is little, if any, gap in religious commitment between the young and the old).

October 4, 2019

“Economics is … the science of not being able to have your cake and eat it”

Filed under: Economics, Environment, Health — Tags: , , , — Nicholas @ 05:00

Philip Booth on Greta Thunberg’s message and its economic over-simplifications:

In many senses, economic problems are more complex than scientific problems and Thunberg is, implicitly at least, pronouncing on economic matters. Whilst knowledge about climate science is uncertain, a judgement has to be and can be made on the balance of evidence. But economic decisions involve trade-offs. Economics is, as Lionel Robbins put it, the science of not being able to have your cake and eat it. We cannot both decrease carbon emissions hugely and enjoy standards of living increasing at the rate that would have been possible if emissions were not reduced.

It is tempting the believe the green rhetoric that we will all have fluffy green jobs and a green standard of living without any hardship from reducing emissions. We cannot. Reducing carbon emissions quickly to zero means that we will have much less of everything else. We might prefer decarbonisation to other goods and services, but it is not a cost-free choice. We considering this, we should remember that the average income in the UK is ten times the average income in the rest of the world. When other people face these trade-offs the sacrifice of decarbonisation is that much greater.

One of the advantages of being richer is that we are more resilient to natural disasters. It follows from this that there is a trade-off between decarbonisation, which might lead to fewer natural disasters, and our ability to cope with them, which might reduce if we become less rich. As we have become richer, deaths from natural disasters have plummeted. The figure shows the fall in deaths in natural disasters over the last century – they have reduced by, perhaps, 90 per cent.

The use of air conditioning illustrates this trade-off in a rather stark way. In a letter on the environment written by Pope Francis in 2015 called Laudato si, the pontiff strongly criticised the adoption of air conditioning in the strongest terms. An academic paper on air conditioning in the US produced such remarkable results that the abstract is worth quoting at length:

    “the mortality effect of an extremely hot day declined by about 80% between 1900-1959 and 1960-2004. As a consequence, days with temperatures exceeding 90°F were responsible for about 600 premature fatalities annually in the 1960-2004 period, compared to the approximately 3,600 premature fatalities that would have occurred if the temperature-mortality relationship from before 1960 still prevailed. Second, the adoption of residential air conditioning (AC) explains essentially the entire decline in the temperature-mortality relationship. In contrast, increased access to electricity and health care seem not to affect mortality on extremely hot days.”

Air conditioning leads to higher carbon emissions and, most likely, higher global temperatures. But the increase in resilience arising from air conditioning is astonishing – it has led to an 80 per cent drop in deaths from heat.

September 30, 2019

QotD: Oil price volatility

Filed under: Economics, Middle East, Politics, Quotations, Russia — Tags: , , , , — Nicholas @ 01:00

Why is the price of oil so volatile? I thought I knew the answer — scarcity and OPEC — till I read Aguilera and Radetzki. They make the case that depletion has never been much of a factor in driving oil prices, despite the obvious drying up of certain fields (such as the North Sea today). Nor did OPEC’s interventions to fix prices make much difference over the long run. What caused the price of oil to rise much faster than other commodities, though erratically and with crashes, they argue, was the result of one factor in particular.

There was a wave of nationalisation in the oil industry beginning in the 1960s. Today some 90 per cent of oil reserves are held by nationalised companies. ExxonMobil and BP are minnows compared with the whales owned by the governments of Saudi Arabia, Venezuela, Iran, Iraq, Kuwait, the United Arab Emirates, Nigeria and Russia. Post-colonial nationalisation affected many resource-based industries, but whereas many mineral and metal companies were privatised in the 1990s as their grotesque inefficiencies became visible, the same has not happened to state oil companies.

The consequence is that most oil is produced by companies that are milked by politicians, and consequently starved of cash (or incentives) for innovation and productivity. Lamenting “politicians’ extraordinary ability to mess things up”, the two authors note “the severely destructive role that can be played by political fights over the oil rent and its use”.

If politicians don’t get in the way, and we have two decades of relatively cheap oil it will be bad news for petro-dictators, oil-igarchs, ISIS thugs, and the promoters of wind power, solar power, nuclear energy and electric cars. But it is good news for everybody else, especially those on modest incomes.

Matt Ridley, “Low oil prices are a good thing”, The Rational Optimist, 2016-02-14.

September 29, 2019

QotD: Crony capitalists and corrupt politicians love tariffs

Filed under: Business, Economics, Government, Politics, Quotations — Tags: , , , , , , — Nicholas @ 01:00

Any survey – and certainly any careful study – of the history and reality of tariff policy confirms that tariffs (and other trade restrictions) are almost always dispensed, not for any plausible public-interest reasons, but to satisfy the private interests of rent-seekers. Even if, contrary to fact, economic journals and textbooks were filled with several plausible scenarios under which trade restrictions can improve the economic well-being of home-country residents, the actual history of trade policy is that this policy is one in service to domestic plunderers.

Many who agree with me here will nevertheless scold me for using, à la Bastiat, the provocative word “plunderers.” But I stick to my choice of words.

“Plunderers” is descriptive, for plunder is in fact what trade restrictions are all about. For two and a half centuries now we proponents of free trade have played mostly on the rhetorical turf of protectionists. On this turf there are language biases galore, such as “trade deficit,” a lowering of home-country tariffs described as “concessions” to foreign countries, the arrival in the home country of especially low-priced imports condemned as “dumping,” and, indeed, the word “protection” itself. Also, don’t forget the constant, clanking parade of inapposite military and sports metaphors.

For two and a half centuries now we proponents of free trade have typically treated the efforts of rent-seekers and rent-dispensers to portray their use of the state to enrich themselves at the expense of others with intellectual and moral respect. Why?

No one attempts to intellectually rationalize the theft and violence committed by street gangs. No one attempts to rationalize shoplifting, vandalism, armed robbery, arson, or rape. (It would, do note, be child’s play for a competent economics graduate student to develop a coherent theory of “optimal gang violence” that shows that, under just the right set of circumstances, there is an “optimal” amount of gang violence that improves the national welfare.) We call these destructive exercises of theft, coercion, and violence “theft,” “coercion,” and “violence.” We call these predatory activities what they really are.

By calling protectionism what it really is – the plunder of the many by the politically powerful few – we more vividly and widely expose protectionism’s ugly and cruel reality.

Don Boudreaux, “Quotation of the Day…”, Café Hayek, 2019-08-04.

September 28, 2019

How the Federal Reserve Works: After the Great Recession

Filed under: Economics, Government, USA — Tags: , , , — Nicholas @ 02:00

Marginal Revolution University
Published on 3 Apr 2018

In response to the Great Recession, the Federal Reserve has implemented some new instruments and policies – including quantitative easing, paying interest on reserves, and conducting repurchase (and reverse repurchase) agreements. In this video we cover how these tools work, and why they matter.

September 27, 2019

How the Federal Reserve Worked: Before the Great Recession

Filed under: Economics, Government, USA — Tags: , , — Nicholas @ 02:00

Marginal Revolution University
Published on 13 Mar 2018

The Federal Reserve has massive influence over the United States and global economy. But how the Fed uses its tools to stimulate or shrink aggregate demand has changed since the Great Recession. We’ll start by covering how it was done prior to 2008.

September 26, 2019

QotD: Preventing “price gouging” is counter-productive in an emergency

Filed under: Business, Economics, Government, Quotations — Tags: , , , — Nicholas @ 01:00

During an emergency like a hurricane, many different categories of goods and services experience supply-demand shocks. The shock may be because of a fall in supply (e.g. oil companies can’t get gasoline into the area) or a spike in demand (e.g. for generators or plywood) or a combination of both. In a free market, prices will rise to help match supply and demand. Higher prices cause people with less valuable or more frivolous uses of the scarce goods to defer purchase, and can cause suppliers to expend extra effort to get product into the area, even diverting supplies from other areas.

When the government institutes price gouging laws in an emergency, the supply-demand mismatch that leads to the rising prices isn’t magically eliminated. First, without higher price incentives, all the incentives to get more supply into the area are lost. Supply and demand under these regulations can only be matched by rationing demand, and typically this is through queuing and increasing search costs (e.g. driving around all over the place looking for a station that is open and has gas). People who gain the limited supplies in this regime are thus those with a lot of time on their hands, where the marginal cost of queuing and driving around does not impose a lot of cost. Think about a roofer scrambling to repair roofs after the a storm — do they have time to have their trucks and crews sitting dormant in gas lines? Thus, price gouging laws tend to ensure that scarce goods in an emergency flow to those with the least use for them.

Warren Meyer, “Price Gouging Laws: Allocating Goods in An Emergency To People Who Have Nothing Much Valuable to Do”, Coyote Blog, 2017-08-26.

September 25, 2019

The Money Multiplier

Filed under: Economics, Government, USA — Tags: , , — Nicholas @ 02:00

Marginal Revolution University
Published on 25 Jul 2017

When you deposit money into a bank, do you know what happens to it? It doesn’t simply sit there. Banks are actually allowed to loan out up to 90% of their deposits. For every $10 that you deposit, only $1 is required to stay put.

This practice is known as fractional reserve banking. Now, it’s fairly rare for a bank to only have 10% in reserves, and the number fluctuates. Since checkable deposits are part of the U.S. money supplies, fractional reserve banking, as you might have guessed, can have a big impact on these supplies.

This is where the money multiplier comes into play. The money multiplier itself is straightforward: it equals 1 divided by the reserve ratio. If reserves are at 10%, the minimum amount required by the Fed, then the money multiplier is 10. So if a bank has $1 million in checkable deposits, it has $10 million to work with for stuff like loans and reserves.

Now, typically, the money multiplier is more like 3, because banks can always hold more in reserves than the minimum 10%. When the money multiplier is higher, like during a boom, this gives the Fed more leverage to move M1 and M2 with a small change in reserves. But when the multiplier is lower, such as during a recession, the Fed has less leverage and must push harder to wield its indirect influence over M1 and M2.

Next up, we’ll take a closer look at how the Fed controls the money supply and how that has changed since the Great Recession.

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