Why? The tax relief will increase money in deposit accounts, which is a liability to banks. Normally that money has been created by the banks as loans, so they have those loans as the corresponding asset - if they are short of money, they can always buy it in the interbank market (what used to be the clearing house system).
There is something seriously wrong with this. If I deposit 100€ my bank is not a 100€ worse off. In the worst case it could park the money at the friendly central bank as excessive reserves. Wait this is important. Someone is wrong on the Internet.
That "worst case" is part of the present demand for Treasury bonds, since banks have more reserves to lend than they have credit-worthy borrowers applying for loans. I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
banks have more reserves to lend than they have credit-worthy borrowers applying for loans.
This is all rediscovering what we've known for three quarters of a century but deliberately forgot because of the inconvenient side-effects for wealth people: fiscal policy is far more effective in a severe downturn and its aftermath than monetary policy.
We need lots of spending, and monetary policy to accommodate it. Trying to gimmick the fiscal policy so its "debt free" is just pandering to the witch doctor chanting over the canoe to ensure that it won't sink when launched. I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
