1 thought on “Can Bernanke Force Banks To Lend by Halting Interest on Excess Reserves?

  1. Can Bernanke force the “BANKS” to lend? The answer is no, Bernanke cannot force the commercial banks to lend. It can force the commercial banks to invest in securities (close substitutes for excess reserves). Forcing the CBs to lend & invest is not the reason to eliminate the payment of interest on excess & required reserve balances.

    The reason to eliminate IOeR’s is that this will reverse the flow of funds/savings from being impounded within the commercial banking system & release funds/savings so that they can be invested through the non-banks (& shadow banks).

    This will eliminate the on-going dis-intermediation (where the non-banks continue to shrink in size but the size of the CB system remains the same). Encouraging the flow of funds through the true financial intermediaries (non-banks), will increase the supply of loan-funds, increase the circuit income, & transactions velocity of funds. It will increase real-investment, real-output, & decrease unemployment.

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