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  1. #1
    Registered User Serenadium's Avatar
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    Federal Reserve reduces cash reserve ratio to 0%

    How will this work? Will this allow Banks to expand the monetary supply infinitely?

    https://www.federalreserve.gov/monet...reservereq.htm

    i.e. a bank with a 10% reserve rate

    - Bob deposits $100 into a bank, the bank lends $90 out
    - the $90 eventually makes its way back to the bank. The bank lends out $81
    - the $81 eventually makes its way back to the bank. The bank lends out $72.9
    - A reserve rate of 10% essentially expands the money supply by the value of the new created money deposited multiplied by a factor of 10. If the government prints $1000, pays it to a contractor who deposits it in a bank with a reserve rate of 10% equates to $10,000 increase in the money supply.
    - This is dubious but can be sustained debatebly.

    With a 0% reserve rate

    - Bob deposits $100 into a bank, the bank lends $100 out
    - the $100 eventually makes its way back to the bank. The bank lends out $100
    - the $100 eventually makes its way back to the bank. The bank lends out $100 etc
    - The money supply is expanded infinitely....

    What is happening?
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  2. #2
    Registered Developer lockdev's Avatar
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    The Fed's overreaction to this will go down as the worst decision in the history of economics.

    Hyperinflation inbound.

    Hold onto your butts boyos.
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  3. #3
    Registered User Fairplay's Avatar
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    Originally Posted by lockdev View Post
    The Fed's overreaction to this will go down as the worst decision in the history of economics.

    Hyperinflation inbound.

    Hold onto your butts boyos.

    Correct, could go the way of venezualas, turkeys currencies. To be fair though, we've had decades of this kind of mismanagememt
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  4. #4
    Certified T-Rex EnglishRay's Avatar
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    This is only going to end poorly.

    This dump was inevitable w/o Covid19, but the virus and peoples' overreaction has accelerated and worsened things.

    The FED was already manipulating the living **** out of the stonks and USD itself and now it has truly overreacted.
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    Registered User paulinkansas's Avatar
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    With a 0% reserve rate, when one lender defaults, that will probably send a cascade effect of other defaults.

    Source - My uncle was Ike Mathur.
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