Excess Reserves

-          This is the amount of money that banks must keep on hand due to capital requirements, nervousness in the market and the inability to lend safely.

-          Traditional amount has been an average of $2billion

-          On 9/11the reserves went up but came down a week later

-          NOW the reserves are at $1.48 TRILLION from a high of $1.6 TRILLION

No wonder banks are not lending.  

-          As the excess reserves decrease, this will signal inflation and a stronger economy. Inflation will signal higher interest rates --- how high will be the unknown.

-          The St. Louis Fed has great charts and graphs illustrating all of the key issues.