Tuesday, Jul 13, 2010
To ease or not to ease?
Money week: Printing money won't save us from the next wave of deflation
If banks won't lend, we'll get a double-dip recession
To cut a long story short – no wonder banks aren't keen to lend. And if they're not keen or able to lend, the economy isn't going to grow. And if that doesn't happen, we'll see a double-dip.
Posted by happy mondays @ 09:12 AM (613 views) Add Comment
4 Comments
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1. icarus said...
He's still talking as if banks are too insolvent to lend. They don't start with reserves and then on-lend them. Banks start with creditworthy customers who are good bets to repay their loans, then the banks worry later about their reserve position or where the money for the loans comes from - probably from the inter-bank market or the central bank discount window. Good loans create deposits which generate reserves. The problem is finding the creditworthy customers in an economy that's on the slide because of insufficient demand (which in turn is due to insufficient wages).
2. simon68 said...
There is no Double Dip recession since there isn’t any economic recovery after 2008!
If banks do not lend out money, then it will be inflationary depression.
If banks lend out money; then it will be hyper-inflationary depression since all debts turn out bad and won’t be repaid, ultimately lead to more BOE bail out and money printing.
3. urbanbear said...
As the Hungarian Economists (similar to Austrian Economists) point out, increasing the volume of money only helps if the velocity of money does not decrease, thus increasing the average volume of money spent. The snag is the velocity of money acts like a multiplier of money, especially in a fraction reserve system, thus the current decrease in the volume of money (spending), due to unemployment and saving, is dramatically shrinking the volume of money spent, i.e. deflation, despite the huge amounts of extra money added.
Obviously if a mania occurs, or confidence falls in the country/state/currency, the velocity of money could suddenly accelerate, thus multiple the volume spent, so resulting in inflation, maybe even hyperinflation; obviously too much extra money makes this more likely to occur, especially if the previous 'healthy' velocity of money is exceeded!
4. urbanbear said...
correction:
thus the current decrease in the velocity of money (spending)
BTW: A lot of what supermarkets sell are essentials, also their newer lines (e.g. clothing, bedding, household stuff, gardening stuff, electronics, furniture, toys, books etc.) are often much cheaper and more convenient than traditional suppliers, thus why they seem busier now e.g. John Lewis is having to go more upmarket because their lower end stuff is too expensive now, due to stiff competition from supermarkets and discount stores! I keep an opportunist eye out for useful lines and some useful offers in Aldi, Lidl, and Netto, because they can offer even keener prices than the supermarkets, provided you are careful and not snobbish about brands.