Subject: Re: The Excess Cash
<Let's say the person holds a JP MorganChase money market account. And let's say that person transfers $1M in T-bills to cash in a JP Morgan account, because they want to potentially buy something (maybe Berkshire shares) if the market drops suddenly. Now, JPMorganChase is a bank and banks loan money, so they take that $1M, and they use it as [tier 1] capital to lend out $6.6M to other people to invest into things like businesses, real estate, etc. So, let's look at the numbers - the money market fund went down by $1M, the cash account went up by $1M, and a bunch of other people now have $6.6M to invest (along with a $6.6M debt to JPMorganChase).

You are correct in affirming that banks can in effect create money, but your examples do not refute my point that money in bonds is not ‘dry powder’ for stock purchases. If I sell $1 million in bonds to buy stocks, then someone else had to buy those $1 million in bonds. If I put my million in a bank that lends out $6.6m, yes, there’s more money sloshing around, except that the guy who bought my $1 million in bonds had to withdraw that from his bank account, so the bank had to shrink the money supply by $6.6 million - it’s a wash.

Your other examples show how banks and the central bank can create money, but this has nothing to do with bond funds and their role as a source of funding for investors, which is what I was responding to. They may be a source of funds for a given investor, but they are indeed zero sum for the overall market.

Regards, DTB