Banks penalized for holding excess reserves will presumably lend to someone. Make the penalty large enough, and banks may even lend money at negative rates. Alternatively, they’ll just go out and get fancier office furniture. Either way, money gets spent.
This exposes Matt's fundamental misunderstanding of how banking works. Banks cannot use their reserve accounts to go out and buy office furniture. They park those dollars in Fed deposits, Treasury securities, and other more complicated financial instruments as a way of maximizing their interest income. They cannot spend it on office furniture or ANY real goods and services.
Also, for the millionth time, BANKS DO NOT LEND THEIR RESERVES TO THE PUBLIC.
And of course Sweden did not do what Matt says they did. I really wish I could get him to pay attention on this, it's just really embarrassing.
Where does the money come from that they lend to the public?
ReplyDeleteJust curious.