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High-Powered Idiocy from Academic Wonderland

David4 Wrote: Dec 13, 2013 9:01 PM
Mish: "And although creditworthy customers don't want to borrow, Blinder wants the Fed to force banks to lend anyway! To Whom? Banks can only do so by lending to non-creditworthy customers. " Blinder seeks to force this by charging banks interest on their excess reserves. He is right that banks would (likely) pull out their excess reserves. But as Mish explains it is not at all clear that banks would lend money to customers. I think it likely that banks would lend to governments (with good records & ratings), even if that causes the real rates on Treasuries to go negative, provided the negative is small enough. Negative treasuries have already happened a few times since 2008. But more likely is that banks will start charging depositors for putting money on deposit; no telling where the banks would start with that idea. We will then see if that has the effect Blinder and Krugman say they want, that the public starts buying things instead of putting their money in the bank. :-)