Note the bottoming of the M1 money multiplier after its long secular decline. The multiplier is effectively the ratio of money created by the banking system (deposits) vs. money created by the central bank (reserves).
It collapsed and fell to below 1.0 after the financial crisis resulting in the current “liquidity trap.” For every dollar the Fed “prints” — i.e., reserves it creates to purchase treasury securities, for example — the money supply (M1) increases by less than the reserve creation or expansion of the monetary base. This is because depository institutions are hesitant to expand credit and have been shrinking their balance sheets while households have been deleveraging. In addition, the shadow banking system has collapsed and effectively shut down.
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