Right Said Fed?

Banks stopped making money ex nihilo, when they stopped making loans. Why did they stop making loans? Demand dried up. If loan demand was high, so would rates be also. The primary transmission mechanism done froze up Jim.

Let me help you right said Fed... here is some credit, buy bonds, and other things, so that we get that ex nihilo feelin again. But your gonna give me the benefit of ex nihilo with no risk? Why would I risk lending? We don't need to make no stinkin loans.

Velocity went negative as guaranteed return on IOER killed it. Your supposed to buy other things damn it Jim. Ok we'll use what little ex nihilo there is for margin collateral and play the markets then. Ah-ha asset inflation moment.

To measure liquidity, in the old days we would look at loan deposit ratio, not so accurate these days with horizontal shadowing. We now look at the credit to deposit ratio.

A few more FED raises and so goes the IOER up with it. That vertical velocity works in reverse you know, and its going to get mighty nasty coming up.

It also works horizontal, viz. increasing amounts of bank credit are circulating back into the banking system as non deposit liabilities. Think yield chasing, NBFI's acting as SIV's and idle money swept into WMP's. Again, a few more raises, gonna get liquidity trap ugly.

When you shrink the snake eating its own tail, along the way the snake sheds its skin. In the end you get not assets which were bought, you get the remaining liabilities along with the collective ownership of such. 

Right said snakeskin Fed, that's a hush tax man. Indeed, a value extraction tax. Don't tell the dummies, just show them this video....