This guy nails it…
We’re still in a deflationary collapse because we are broke. Broke dicks need jobs. Broke dicks need to be credit worthy. Broke dicks unemployed or soon to be unemployed deadbeats aint borrowing shit. No borrowing our economy stalls because that’s pretty much the way or system works.
When we borrow we create wealth used to create jobs by other people who receive the money for goods and services we purchase. The quickest way to correct the system is to give every taxpayer a big check to spend. Old debts would be paid off and go away and we would all buy a Chevy volt and save Oba mama’s sorry ass in ’12.
What would you do with a hundred thousand or two? Pay off you credit cards and maybe a judgement or two and get back up over 700 Fico and find someone dumb enough to lend you a million would be my guess. (weather is kind of nice in Costa Rica, I’m told ).
In the meantime the government keeps plowing billions into corrupt banks, foreigners, billionaires, and every crooked politician and their families. For what?
So the guys in charge in Washington stay in charge, of course.
In the U. S., when a bank makes a loan, this loan creates a deposit for the borrower. If the bank then ends up with a reserve requirement that it cannot meet by borrowing from other banks, it receives an overdraft at the Fed automatically (at the Fed’s stated penalty rate), which the bank then clears by borrowing from other banks or by posting collateral for an overnight loan from the Fed. Similarly, if the borrower withdraws the deposit to make a purchase and the bank does not have sufficient reserve balances to cover the withdrawal, the Fed provides an overdraft automatically, which again the bank then clears either by borrowing from other banks or by posting collateral for an overnight loan from the Fed.
The point of all this is that the bank clearly does not have to be holding prior reserve balances before it creates a loan. In fact, the bank’s ability to create a new loan and along with it a new deposit has NOTHING to do with how many or how few reserve balances it is holding.
What is required to drive lending is a creditworthy borrower on the other side of the bank lending officer’s desk, which means an employed borrower, whose income allows him to sustain regular repayments. Absent that, there will be no lending activity. It is pointless to blame the evil bankers for this of state affairs, since they don’t control fiscal policy, which is the remit of the Treasury.
For all the talk from policy makers about not repeating the mistakes of Great Depression, we seem to be perilously close to doing precisely that. This is largely based on a poor understanding of the economic dynamics of that period, even by that noted scholar of the Great Depression, Ben Bernanke.
Most people believe the economy crashed between 1929 and 1932 and then remained depressed until the Second World War, which finally mobilized the economy’s idle resources and brought about a full recovery. That’s complete bunk if you calculate the unemployment data correctly (see here for an explanation) . Even leaving aside the unemployment calculations, it is abundantly clear that, once the Great Depression hit bottom in early 1933, the US economy embarked on four years of expansion that constituted the biggest cyclical boom in U.S. economic history. For four years, real GDP grew at a 12% rate and nominal GDP grew at a 14% rate. There was another shorter and shallower depression in 1937 largely caused by renewed fiscal tightening (and higher Federal Reserve margin requirements). This second depression has led to the misconception that the central bank was pushing on a string throughout all of the 1930s, until the giant fiscal stimulus of the wartime effort finally brought the economy out of depression.