Lakshmi Rhone wrote: > Jim > do you agree with Bartlett here? > http://economix.blogs.nytimes.com/2012/07/31/the-fed-should-stop-paying-banks-not-to-lend/?ref=business
Bartlett doesn't look at why the Fed is paying interest on excess reserves in the first place: the banks were panicking -- as was the entire financial system -- in 2008, so that (I believe) this was seen as a way of propping up expectations and providing needed cash flow. I'd guess that this kind of "welfare" isn't needed any more. So it does make sense to stop paying interest on excess reserves. Maybe, as in the Marketplace story that quoted me said, the Fed should _charge_ a fee for excess reserves held. The problem, I think, is that nominal interest rates can't go any lower. More importantly, banks are still scared to lend and are using non-price rationing. And firms and especially households don't want to borrow (due to their excessive debt & their fears). So monetary expansion is likely to pump more air into financial-market bubbles (or simply prop them up). However, it's good for the Fed to at least try, since fiscal policy is so contractionary these days. This answer does not address the long-term problems: if the rate of profit is depressed for reasons other than realization problems, then pumping up demand simply causes inflation. Severe private-sector debt can be inflated away, but nobody with any kind of power wants inflation. -- Jim Devine / If you're going to support the lesser of two evils, you should at least know the nature of that evil. _______________________________________________ pen-l mailing list [email protected] https://lists.csuchico.edu/mailman/listinfo/pen-l
