When the Fed “injected liquidity” by keeping interest rates low, banks were able to partake of the inflationary dollar by loaning it out to anyone at almost no interest rate. Banks were happy — they could get easy money, turn it into easy loans, see some of it come back in deposits — deposits that let them create more debt through the hilariously low reserve ratio.

But now the Fed is lowering the rate of their liquidity injection — they’re still creating money, they’re just not doing it so quickly. Banks that built new branches, hired new bankers and hoped for more growth are now stuck — they need money to build their reserves, which lets them loan out more money just to keep the doors open. What is a bank to do?

Read this entire article at the gold investment site.

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