Mon 2010-09-20 10:14 EDT

Mish's Global Economic Trend Analysis: Fictional Reserve Lending And The Myth Of Excess Reserves

...1) Lending comes first and what little reserves there are (if any) come later. 2) There really are no excess reserves. 3) Not only are there no excess reserves, there are essentially no reserves to speak of at all. Indeed, bank reserves are completely "fictional". 4) Banks are capital constrained not reserve constrained. 5) Banks aren't lending because there are few credit worthy borrowers worth the risk. ...concern that excess reserves will lead to lending and inflation is totally unfounded in theory and practice. Fractional Reserve Lending is really Fictional Reserve Lending. In practice, the major constraints to lending are insufficient capital and willingness of credit worthy borrowers to seek loans.

excess reserves; Fictional Reserve Lending; Mish's Global Economic Trend Analysis; myth.

New Economic Perspectives Sat 2010-07-24 16:30 EDT

Deficit Doves Meet the Deficit Owls

Paul Davidson, James K. Galbraith and Lord Robert Skidelsky

...We support the central objective of the letter -- a full employment policy now, based on sharply expanded public effort..apart from the effects of unemployment itself the United States does not in fact face a serious deficit problem over the next generation, and for this reason there is no "necessity [for] a program to cut the mid-and long-term deficit." On the contrary: If unemployment can be cured, the deficits we presently face will necessarily shrink. This is the universal experience of rapid economic growth: tax revenues rise, public welfare spending falls...The long-term deficit scare story plays into the hands of those who will argue, very soon, for cuts in Social Security as though these were necessary for economic reasons...We call on fellow economists to reconsider their casual willingness to concede to an unfounded hysteria over supposed long-term deficits, and to concentrate instead on solving the vast problems we presently face. It would be tragic if the Evans letter and similar efforts - whose basic purpose we strongly support - led to acquiescence in Social Security and Medicare cuts that impoverish America's elderly just a few years from now.

Deficit Doves Meet; Deficit Owls; New Economic Perspectives.