Well, I am not even going to pretend to understand this one...
Basically, Gary North is showing that the money supply is decreasing and it is implied that the fed is just getting rid of it...
I don't like what is being implied, at least from my read of the article.
So, what are the things I know, or at least I think I know...
Banks create money through credit expansion, the more they loan, the more money is created. They loan me $100k, I give it to someone who puts it in a bank and it gets loaned again. The reserves meant that the amount that could be loaned was declining each time this happened, but by taking it off the balance sheet, it could technically be loaned forever.
So, I think loans that get written off are a destruction of money, it just disappears kind of the way it magically appeared.
Banks are suffering huge losses, and they are tightening credit standards, they simply aren't creating as much money. Losses are continuing, so more money disappearing. I suppose some people are paying down debt, but banks are balance sheet impaired in their ability to relend that money again.
So, how does this interact with the fed? Is the fed really deflating, or is this just showing up as a spillover with what's happening with the credit contraction?
Like I said, I don't understand this stuff at all, but it doesn't make sense to me that the fed is somehow just dissolving money. It makes way more sense that this is how we are seeing the credit contraction showing up.