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View Diary: Dollars are like leaves that grow on trees. (29 comments)

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  •  Money in bank gets lent out and increases the (3+ / 0-)
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    lurker123, misslegalbeagle, debedb

    money supply.  It does not just sit there.  

    The most important way to protect the environment is not to have more than one child.

    by nextstep on Sat Dec 08, 2012 at 11:07:05 AM PST

    [ Parent ]

    •  At the moment, money in the bank is just (0+ / 0-)

      sitting there. Interest rates are below the rate of inflation- there is very little demand for credit.

      In any case, there is a fundamental difference between giving someone money and lending them money. Krugman et al have been screaming about the need for more government spending since 2008. If loans could substitute there would be no problem.

      (Any economists can feel free to correct me on this.)

      •  No, you have it backwards. (1+ / 0-)
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        Interest rates are set at (ideally) a market-clearing price for lending.  The fact that interest rates are low does mean that demand for credit is low, sure, but it also represents the price at which it's being lent out.  My money is no more just sitting in the bank now than when interest rates were 8%.  

    •  Right, however: (1+ / 0-)
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      Just to clarify, banks make loans first,  then find reserves later.

      If they don't have the reserves (deposits), then they borrow them through overnight interbank lending.  

      If that doesn't work, then the Fed Reserve acts as lender of last resort.  

      When the Fed acts as lender of last resort, actual new money is put into circulation.

      This is one reason why it's been a success to move people from adequate wages to debt.  Cuz the debts are unlimited.

      And can far exceed what any debtor can pay off, as we witnessed in 2008, and as we'll witness again some time in the future, cuz nothing's changed: wages remain low (when you have a job), and both government and banks prefer you to be in debt.

      Much better for the government to simply allow everyone access to the money alphabet, so everyone can participate in moving money around, which moves goods and services around.  Just like sharing the alphabet allows everyone to participate in our language community.

      And whoever heard of borrowing the alphabet, especially paying rent on it's use?

      The gov could at the very least loan money at no interest.  Again, it doesn't actually cost them a dime.

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