Reply #45: But we did have high inflation then, and it did cut into incomes [View All]

[Yo_Mama]

Real income trends for the lower and median income households control the future of the US economy.

You can have inflation from various causes, and while monetizing debt (printing money) is one of them, it's not the only cause.

Also, that graph you posted has nothing to do with money supply, especially circulating money. I don't know what relevance it has to the current discussion. That graph has more to do with crisis in the financial system, and the Fed's ineffective attempts to address it, than inflation and debt monetization.

Bank reserves fall into two categories. The first are required reserves, which are calculated on the basis of the money at banks. Thus when money in circulation and on deposit at banks increases, so do required reserves. But your graph does not show required reserves.

It shows excess reserves, which are reserves in excess of the required reserve. Excess reserves may or many not really be excess - for example, Loan Loss reserves show up in this amount. The graph you posted is pretty much a measure of bad loans for which banks have reserved money. (ALLL = Allocation for Loan and Lease Losses):

http://en.wikipedia.org/wiki/Reserve_requirement