My theory is that when the QE rounds started and trillions of dollars were pumped into the economy (major inflationary red flag), the velocity of money dropped like a rock (major deflationary red flag) as a natural reaction.
EDIT: The reason is likely tied to the fact that interest rates sat on the bottom for the last 5-8 years and holding money was just as valuable as investing it. See the article[1] on the St. Louis Fed's website.
The increase in excess reserves is not mysterious. The Fed starting paying 0.25% on them in 2008 (now 0.50%) while other interest rates were near zero.
Eventually some minor crisis will trigger spending, all this excess cash will hit the system like a floodgate, and we will have an inflation spiral (because suddenly hoarding will be a bad idea). And the irony is that the ethical justification for the fed is that it is supposed to be countercyclical, and thus 'good for society'.
EDIT: The reason is likely tied to the fact that interest rates sat on the bottom for the last 5-8 years and holding money was just as valuable as investing it. See the article[1] on the St. Louis Fed's website.
1. https://www.stlouisfed.org/On-The-Economy/2014/September/Wha...