Economists don’t know a credit from a debit. As Luca Pacioli, a Renaissance man, "The Father of Accounting and Bookkeeping” famously quipped: “debits on the left and credits on the right, don’t go to sleep with an imbalance”.
(+) or (-) reserve balances (outside money) as well as (+) or (-) of money products (inside money) have nothing to do with the repo spike (the supply of loanable funds).
It is simply a (-) destruction or (+) activation in the utilization of savings -> the (+) or (-) of savings’ products.
The specious: “Inside and Outside Theory of Money”
"Because monetary policy works with a lag, we need to be forward looking, taking actions to forestall imbalances that may not be visible for many months. There is no alternative to basing actions on forecasts, at least implicitly. It means that often we need to tighten or ease before the need for action is evident to the public at large, and that policy may have to reverse course from time to time as the underlying forces acting on the economy shift. This process is not easy to get right at all times, and it is often difficult to convey to the American people, whose support is essential to our mission."
“The money supply measures reflect the different degrees of liquidity—or spendability—that different types of money have.”
“Following the introduction of NOW accounts nationally in 1981, however, the relationship between M1 growth and measures of economic activity, such as Gross Domestic Product, broke down.”
“Chairman Greenspan added, "The historical relationships between money and income, and between money and the price level have largely broken down, depriving the aggregates of much of their usefulness as guides to policy.”
Take the Take the “Marshmallow Test”: (1) banks create new money (macro-economics), and incongruously (2) banks loan out the savings that are placed with them (micro-economics).
You have to retain cognitive dissonance capacity, like Walter Isaacson described Albert Einstein’s ability: to hold two thoughts in your mind simultaneously – “to be puzzled when they conflicted, and to marvel when he could smell an underlying unity”.
Like Athenian philosopher Plato -- whose "first fruits of his youth infused with hard work and love of study" said: "We seem to find that the ideal of knowledge is irreconcilable with experience”.
See a man 30x’s smarter than Albert Einstein:
Leland J. Pritchard, 1954. "Toward A More Meaningful Statistical Concept of The Money Supply," Journal of Finance, American Finance Association, vol. 9(1), pages 41-48, March.
"If the “store of purchasing power” attribute of money, when applied to a given asset, is to have significant meaning, it ought to be defined in terms which are applicable to the whole economy. That is, no asset really has a “monetary store of purchasing power” quality unless there can be a net conversion of that asset into money, ceteris paribus. In other words, it must be possible to effect this conversion without necessitating that any present money holder reduce/liquidate his holdings/assets. Any other interpretation becomes mired in a futile discussion of relative degrees of confidence and liquidity. But much more than monetary liquidity for the individual holder is necessary if an asset can be said to have the “store of purchasing power” quality; it must be simultaneously monetarily liquid for society as a whole."
In "The General Theory of Employment, Interest and Money", pg. 81 (New York: Harcourt, Brace and Co.): John Maynard Keynes gives the impression that a commercial bank is an intermediary type of financial institution (non-bank), serving to join the saver with the borrower when he states that it is an:
“optical illusion” to assume that “a depositor and his bank can somehow contrive between them to perform an operation by which savings can disappear into the banking system so that they are lost to investment, or, contrariwise, that the banking system can make it possible for investment to occur, to which no savings corresponds.”
In almost every instance in which Keynes wrote the term "bank" in his General Theory, it is necessary to substitute the term non-bank in order to make Keynes’ statement correct.
This is the source of the pervasive error that characterizes the Keynesian economics, the Gurley-Shaw thesis, the elimination of Reg Q ceilings, the DIDMCA of March 31st, 1980, the Garn-St. Germain Depository Institutions Act of 1982, the Financial Services Regulatory Relief Act of 2006, the Emergency Economic Stabilization Act of 2008, sec. 128. “acceleration of the effective date for payment of interest on reserves”, etc.
This is both the source of stagflation and Secular Strangulation, not robotics, not demographics, not globalization.