Economy and General Discussion

Nice article, Mish. It adds a lot of detail to my understanding of these issue.

I have two questions or comments:

(1) When you are discussing demand deposits, you say that "less than a third of it is there"  because of the sweeps. But, I think, what you are really talking about is the portion of demand deposit accounts that are subject to the Fed's miniscule reserve requirement.  If that is so, even less than a third of the demand deposit accounts is "in there."  Maybe I am missunderstanding something here; it IS complicated.

(2) When you mention that the reserve requirement for savings deposits is zero, you seem to be implying that is improper? If we had a proper (non-fractional reserve) banking system, wouldn't we want a 100% reserve requirement on demand deposits and zero reserve requirement on savings (with no sweeps!)?  With those reserve requirements banks would be functioning as simple intermediaries between savers and borrowers and there would be no fraudulent creation of new money out of thin air. (Prudent bankers would probably keep some reserve against savings accounts because of imperfect deposit and loan alignment, or because they offer some withdrawal flexibility to depositors.)

Tom