Money supply and monetary transmission are important entities and functions within our system. Usually, even broad money supply is well defined, but I was getting to thinking about shadow banking assets and the identities they may have in the minds of those who supply the funds. Shadow banks are not deposit takers so they do not actually hold “money”, but they do hold assets that their investors may consider to be money like, i.e high yielding cash substitutes, within their portfolios.
Now if perceived money supply is actually higher and we have an asset price shock, we also have a monetary shock by default. Now this is just a quick “throw the thought out in the air”, but if the shadow banking system is also messing with identities and virtual money supply, things may well be more complex than we think they are as things start to unravel.
Just 30 second blog….