Re:Central Banks and Disintermediation
by eru on Saturday January 30, 2021 @12:56AM
(#25966623)
Well, if food prices go up too much, I will moderate my eating. Or change from meat to oatmeal.
Similar for a bank. If deposits or interbank funds become to hard to come by, they'll curtail lending.
In any case, it seems like we mostly agree on what's actually happening.
(Though just to make sure, do you understand and/or agree on the scenario where there are no legal reserve requirements?)
Our main difference is in whether we treat 'banks lend deposits' as a valid description.
Btw, you are right that strictly speaking banks don't have to have reserves on hand in the logical second when they make the loan. But they do almost immediately need the reserves (eg deposits) when the debtor starts spending.
Similar for a bank. If deposits or interbank funds become to hard to come by, they'll curtail lending.
In any case, it seems like we mostly agree on what's actually happening.
(Though just to make sure, do you understand and/or agree on the scenario where there are no legal reserve requirements?)
Our main difference is in whether we treat 'banks lend deposits' as a valid description.
Btw, you are right that strictly speaking banks don't have to have reserves on hand in the logical second when they make the loan. But they do almost immediately need the reserves (eg deposits) when the debtor starts spending.