The base money confusion By Izabella Kaminska Peter Stella: Naturally, this stunningly incorrect conceptualization of the lending process and how it interacts with bank reserves leads people to think how to entice banks to “get this money out the door” including to thoughts of “negative” deposit rates as an incentive. My frustration lies in my [...]
Peter Stella:
Naturally, this stunningly incorrect conceptualization of the lending process and how it interacts with bank reserves leads people to think how to entice banks to “get this money out the door” including to thoughts of “negative” deposit rates as an incentive.
My frustration lies in my inability to explain to “sophisticated” people why in a modern monetary system–fiat money, floating exchange rate world–there is absolutely no correlation between bank reserves and lending. And, more fundamentally, that banks do not lend “reserves”.