Shane Mage wrote: > As far as I know, the Fed's discount window is still wide open. > The banks can borrow as much--short term--as they want. > So why the hysteria about the financial system "freezing up"? > If banks don't lend to homeowners or consumers, that's not the cause of a > depression. > It's the result. > The "fundamentals" are rotten. > Solution (as always): Inflate, Inflate, and Inflate some more.
the problem is not a liquidity problem, where discount loans help. The problem of "freezing up" is with bank capital, collateral, and longer-term credit: this is where the "fundamentals" being rotten comes in. In this case, the banks refusing to lend to homeowners, small businesses, and consumers is not only the result of a "depression" (or whatever we call this mess) _but also_ a cause. There is "cumulative causation" or a "vicious circle." (Understanding this kind of stuff does not require that we think dialectically. It is recognized by some mainstream economists: see for example Figure 2 in Mishkin's Money & Banking textbook, 8th edition, ch. 8, page 209.) BTW, an "inflate" policy is actually a good idea if/when the economy is suffering from deflation. -- Jim Devine / "Nobody told me there'd be days like these / Strange days indeed -- most peculiar, mama." -- JL. _______________________________________________ pen-l mailing list [email protected] https://lists.csuchico.edu/mailman/listinfo/pen-l
