Banks are not lending despite the massive quantitative easing. They are fat with reserves, paying huge bonuses again, and obviously doing something with their money other than providing funds for the commercial activity of the nation. Excess Reserves are an accounting function. The banks themselves do not reduce their reserves significantly through lending in the aggregate, but seek to minimize the opportunity cost of reserves. But it is symptomatic in the sense that the lack of reserves is most definitely NOT an issue with lending. No one can deny with any credibility that if the Federal Reserve reduced their payment on reserves to zero, or even a negative, that lending activity would not increase. And yet they do not. Why? Because the first priority of the Fed is the health of the banking system itself, and not the national economy and the availability of credit to non-banking institutions. They are seeking to drive commercial entities out of secure savings to risk investment again, but providing a safe harbor for the banks while they are doing it, while attempting to maintain the appearance of financial system solvency. The critical, unspoken factor is that the US banking system is not yet healthy, is not sound, is not well capitalized despite the record expansion in the monetary base and its specific direction to the banks themselves. They have simply not taken the writedown necessary to make themselves financially sound, because they do not wish to take the hit to earnings, salaries, stock options and bonuses.
Banks are not lending despite the massive quantitative easing. They are fat with reserves, paying huge bonuses again, and obviously doing something with their money other than providing funds for the commercial activity of the nation.
Excess Reserves are an accounting function. The banks themselves do not reduce their reserves significantly through lending in the aggregate, but seek to minimize the opportunity cost of reserves. But it is symptomatic in the sense that the lack of reserves is most definitely NOT an issue with lending.
No one can deny with any credibility that if the Federal Reserve reduced their payment on reserves to zero, or even a negative, that lending activity would not increase. And yet they do not. Why?
Because the first priority of the Fed is the health of the banking system itself, and not the national economy and the availability of credit to non-banking institutions. They are seeking to drive commercial entities out of secure savings to risk investment again, but providing a safe harbor for the banks while they are doing it, while attempting to maintain the appearance of financial system solvency. The critical, unspoken factor is that the US banking system is not yet healthy, is not sound, is not well capitalized despite the record expansion in the monetary base and its specific direction to the banks themselves. They have simply not taken the writedown necessary to make themselves financially sound, because they do not wish to take the hit to earnings, salaries, stock options and bonuses.
The inadequacy of the foundation of US monetary and financial policy has never before stood so starkly revealed. The policy has no concern for any but the banks. And the people are getting pissed. Few of them have any money to invest anyway, are going to hang on to what they have and are not going to invest it in a rigged system run by thieves.
We have to have a Government and a financial system that serves more than just the interests of the big banks. It is not that the existing system is immoral, which it clearly is, but that it is massively dysfunctional as well. I fear that event risk has never been higher. As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
Because the first priority of the Fed is the health of the banking system itself, and not the national economy and the availability of credit to non-banking institutions.
The Government is the other leg of this, but under small-government market fundamentalism there's no hope of a sensible policy. En un viejo país ineficiente, algo así como España entre dos guerras civiles, poseer una casa y poca hacienda y memoria ninguna. -- Gil de Biedma
