Today I am working in Dubbo, which is in the western region of NSW and getting into the remote parts of the state. There is a great beauty to enjoy in remote Australia which often passes people by. My field trip is in relation to continuing work I am doing with indigenous communities in this region. I will report on this work in due course. But today’s blog continues the theme I developed yesterday on bank reserves. In yesterday’s blog – Building bank reserves will not expand credit – I examined the dynamics of bank reserves but left a few issues on hold because I ran out of time. One issue is the possible impact of expanding bank reserves on inflation. This is in part central to the mainstream hysteria at present about the likely legacies of the monetary policy response to the crisis. The conclusion is that everyone can relax – the only problem with the monetary policy response is that it will be ineffective and more fiscal policy effort is required.