Interesting response, Jim. Seems you anticipated these ideas in the Marketplace report.
Bartlett writes: "But rather than make loans, banks instead are simply sitting on the money, so to speak. According to the Federal Reserve, they have $1.5 trillion in excess reserves <http://research.stlouisfed.org/fred2/series/EXCRESNS>. This is extraordinary. It is as if individuals took $1.5 trillion of their savings out of stocks, bonds and every other income-producing financial asset and put it all into non-interest-bearing checking accounts back in 2009, and just left it there. Economists have puzzled about this phenomenon for years. They note that historically the Fed never paid interest on reserves, but in October 2008 it began doing so<http://www.federalreserve.gov/newsevents/press/monetary/20081006a.htm>. Moreover, the Fed pays interest on excess reserves as well as required reserves. Originally, the rate was 0.75 percent to 1 percent, but since Dec. 17, 2008, it has been fixed at 0.25 percent. This may not sound like much, but keep in mind that interest rates on United States Treasury securities with maturities of less than two years are currently less than 0.25 percent<http://markets.on.nytimes.com/research/markets/bonds/bonds.asp>. The effective fed funds rate<http://www.federalreserve.gov/releases/h15/current/default.htm>is also lower than 0.25 percent. In recent weeks, it has been as low as 0.13 percent. Compared with these rates, a riskless return of 0.25 percent looks pretty good. There is no consensus view on why market interest rates are so low. A lack of demand for loans by businesses is thought to be the key reason. With the gross domestic product growing at only a 1.5 percent rate<http://www.nytimes.com/2012/07/28/business/economy/us-economy-expands-at-1-5-rate.html>in the second quarter, businesses have no difficulty meeting the demand for goods and services without having to invest or expand capacity. Moreover, nonfinancial corporate businesses have more than $1.5 trillion in financial assets available to them, according to the Fed’s flow of funds report <http://www.federalreserve.gov/releases/z1/Current/>. This is money they could invest tomorrow if they saw any need to do so." I continue to be skeptical of this kind of demand-side formulation in that the reason that firms can meet demand out of extant capacity is precisely because demand is not being created by net investment, embodying technical change by which which firms competitively attempt to win relative market share and even expand the market on the basis of reduced unit values and thereby increase demand. As long as firms are investing, demand will tend to increase, pari passu, to encourage further investment. Virtuous cycle. The critique of Say's Law should not lead us to claim that expanded reproduction is simply impossible. This was Rosa Luxemburg's mistake as Grossman explained. Yet it seems that we have reached a point that surviving firms will not undertake net investment until they achieve greater market power as a result of the bankruptcy of rivals and the possibility of a higher rate of exploitation. Yet it is not clear that "society" will be able to wait until the recovery commences and that the recovery in net investment will be strong enough to absorb the reserve army of labor, enlarged as a result of the centralization of capital. As the evidence cited by Andrew Gamble makes clear, protracted crisis has historically been more favorable to the right than to the left. On another matter, I think that Cox may be an Obama plant since such empty posturing for Romney can only lead people into Obama's camp. LR
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