Private Issues (2½): Imbalance and Reaction

It is the essential feature of banking, to generate money. And that is the origin of monetary imbalance. That is how M3 became so much bigger than base-money.

M3 and Base Money

M3, the blue line, increases until the red line (base money) can no longer resist and is pulled upward by it. There at the end you can see the big, sudden jump in base money, the Federal Reserve's reaction to a financial crisis that was caused by the gigantic long-term increase in private-issue money.

Monetary imbalance -- the excess of private-issue money relative to base -- is the recurring problem. It is the cause of inflation and of crisis and depression.