Of course, if interest rates have become irrelevant, then so have reserve requirements, so that would be a two-fer. I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
In what sense has interest rates become irrelevant?
The rates at which Banks are lending are increasingly parting company from the Central Bank rates. That's because the premium they charge for their implicit guarantee has gone up with the perceived likelihood of default.
Why do you say that if interest rates are irrelevant so are reserve requirements? "Any economic unit can emit money. The serious problem is to get it accepted" Hyman Minsky
In what sense has interest rates become irrelevant? The rates at which Banks are lending are increasingly parting company from the Central Bank rates. That's because the premium they charge for their implicit guarantee has gone up with the perceived likelihood of default.
Yes, the mark-up over the cash rate has gone up.
How does that make the cash rate irrelevant? The mark-ups of bank lending over banks cost of funds have not been locked in place since direct regulation of bank lending rates was dropped.
Why do you say that if interest rates are irrelevant so are reserve requirements?
What do reserve requirements do? They establish the underlying leverage of central bank operations to inject and withdraw reserves, to manipulate the cash rate.
What else could they be doing? They are not contingency reserves for capital adequacy, because they are not free to be used to meet capital losses. They are not a tool to manipulate the quantity of money in the system, because the central bank cannot manipulate the quantity of credit-money in the system and already has the power to manipulate the quantity of fiat currency in the system. I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
How does that make the cash rate irrelevant?
If falls in the cash rate have no effect whatever on the rate Joe Public pays on his mortgage or any other loans he takes out, I would say that makes the cash rate "irrelevant", but I guess that's just my opinion. "Any economic unit can emit money. The serious problem is to get it accepted" Hyman Minsky
This is reminiscent of the way Peak Oil means that OPEC can no longer lower prices by raising production, but they can still raise prices by withdrawing production.
Peak Credit? When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done. — John M. Keynes
On that logic, you are effectively dividing into two possible alternatives:
