The Importance of Interest on Interest and Interest on Excess Reserves

In order to keep the economy inflated the Fed has to ensure that credit is continuing to grow four or five percent a year. Last year I looked at it non-financial sector debt grew six and a half percent per year we had booming securities markets just that little bit of excess over the four and a half 4 to 5 percent growth caused causing booming securities markets. When you start to see that the that debt is not growing at four to five percent per year what that's going to tell you is that you're going to start to see problems in the financial sector  and start to see banks having bank runs or start to see the euro dollar market having a shortage of collateral which is exactly the