Comments on: Counterparties: Reservations about reserves A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 By: DLT Wed, 01 Aug 2012 23:05:45 +0000 Banks DO NOT LEND RESERVES! Bank lending IS NOT RESERVE CONSTRAINED!Hoping to “force” banks to lend by penalizing them for holding exess reserves is the hight of stupidity. Anyone who considers such proposals knows nothing about banking. Bank lending is only constrained by: 1.Presence/lack of creditworthy borrowers 2. Capital reqiurements. That’s all that matters.

By: Greycap Wed, 01 Aug 2012 12:16:38 +0000 “Do we really think a bank is going to pass up a profitable loan?”

That is the wrong question – unfortunately, Walsh obscured the point by fixating on the bank lending angle. The question is, do we really think a bank is going to pass up a loss-making deposit? And the answer is, it will if it can.

In aggregate, banks are doomed to fail in this ambition because only the Fed can destroy base money. But that won’t stop each individual bank from doing its best to unload its unwanted reserves on another bank. Whatever measures it takes – say, charging interest on deposits – will transmit a reduced propensity to hold money throughout the economy. That translates to an increased propensity to spend.

The argument against this measure is that there might be unforeseen consequences, such as cash hoarding. The point of bringing up Sweden and Denmark, and the decades during which the Fed paid no interest on reserves, is that the available evidence suggests otherwise.

By: djiddish98 Wed, 01 Aug 2012 11:48:14 +0000 Do we really think a bank is going to pass up a profitable loan?

Let’s step back from the money multiplier “theory” for a second and think about how a business actually works, even a bank. Reserve positions only come into play at the end of the loan process (to cover the new deposit the bank just added into the receiver’s account), not the beginning.

Besides, even if the fed started taxing reserves, banks would just sweet them into the same asset by a different category, and magically, it’s not a reserve.

By: TFF Wed, 01 Aug 2012 11:23:47 +0000 “Just 54% of Americans 18-24 were employed last year, the lowest level since data has been kept”

Doesn’t this go hand-in-hand with increased college enrollment? Though paid employment opportunities are increasingly scarce for the young — entry level jobs are being replaced with “internships”.

By: KenG_CA Tue, 31 Jul 2012 23:34:12 +0000 We shouldn’t be relying on the Fed to manage the economy, as they just don’t have the right tools. It should be apparent to everyone by now that controlling the supply of money via interest rates is cannot be depended on to spur or slow down growth, and that other mechanisms are required.

Proponents of lower taxes claim that when taxes are low, people and businesses have more money to invest. However, the excess cash suggests there is plenty of capital to invest, what is lacking is the will to invest. That is a flaw in the “low taxes will spur investment” wish; instead of wishing or hoping or praying that people will invest, we need to structure the tax code so that those who are accumulating cash either spend it or invest it, and we can do that by taxing income (all forms) higher, and then providing credits for investment.

We have proven that low interest rates will not increase investment or consumption, so let’s stop debating what the Fed should do, and get Congress to institute policy that gets more profits back in circulation.

For all of the long time readers of comments here, sorry for the repetition, but hey, as long as people keep talking about using hammers on screws, I’ll keep suggesting they switch to screwdrivers.