Month: March 2013

Imagine that all bank deposits — the dollars in your checking account — were 100% backed, one-for-one, by your bank’s reserve holdings at the Fed (the modern, fiat-money-world equivalent of gold reserves). Runs on bank deposits would be impossible, because the outfit that issues reserves and currency can’t run out of reserves and currency —…

Update April 4: Steve Waldman kindly links to this post, and I’m rather abashed that he does because it’s wrong as written. As pointed out by Ramanan. (Though the spirit is right.) I should have said: Private Domestic Nonfinancial (i.e. households and businesses, a.k.a. the “real” economy in which people produce, sell, and buy goods…