Re:The ballooning money supply may be the key to unlocking i...
by darawk on Tuesday October 13, 2020 @05:50PM
(#24770726)
Sure, there are limits. But fundamentally, holding all else constant, increasing bank reserves decreases the cost of lending, which increases the quantity of lending, which increases the money supply.
Re:The ballooning money supply may be the key to unlocking i...
by neilwilson on Friday October 16, 2020 @09:19AM
(#24800520)
"increasing bank reserves decreases the cost of lending"
Only if there is a net margin between what the central bank pays on reserves and what the bank has to pay out on the matching deposits.
Once central bank renumeration gets low, the cost of unsecured deposits matches or exceeds the central bank remuneration because of the draw to cash.
Theoretically, yes. If loans are 2% instead of 4% then that may induce people to take one up to do some kind of economic activity (start business, renovate house, buy a new car, etc).
But it is not guarantee: people may feel too financial vulnerable to take risks with borrowed money. This is where the limits of monetary policy are run it.
There are points where the government starts spending on various projects: if a contractor is hired to build a bridge, and it will take "x" years, then all of its employees may feel more confident and do more spending because for the next "x" years they're set. Their money then goes into other people's pockets, into other people's pockets, etc.
Public/government spending to kickstart demand is what Keynesian economics basically is.