Federal Reserve Bank credit - the Fed's lending to banks, dealers, other central banks and AIG plus its holdings of securities - has soared by $850 billion, or over 90%, since 11 September, just before Lehman's failure. Importantly, the Fed has chosen not to sterilise fully the impact of this expansion on banks' reserves - their deposits held at the Fed. Reserves and currency in circulation constitute the monetary base. The average level of the base in the fortnight to 8 October was 17% higher than four weeks earlier.

Real monetary base expansion tends to lead economic activity so the recent pick-up could suggest improving growth prospects - see first chart. Historically, however, major swings in base money have been driven by the currency component rather than bank reserves. The hope is that banks holding excess cash in their accounts at the Fed will be more willing to lend to other banks and the wider economy but many commentators believe the Fed is "pushing on a string".

The Fed is copying the Bank of Japan's 2001 policy of "quantitative easing", which involved the central bank buying government bonds in order to flood the banking system with liquidity. Real monetary base growth peaked at an annual 38% - see second chart. Commentators were similarly sceptical of any impact on financial behaviour or economic activity but growth recovered in 2002, while the rate of contraction of bank lending slowed, although these improvements may have reflected other factors.