But one source of lending hasn't been removed or reduced. Rates are down. Domestic bank deposits are up, as people pay down debt, reduce consumption, and save more. but what is the net offset from increased deposits against the closure of the securitisation market: total available 'money' is still negative after the offset.
These facts lead to banks having higher reserves to lend against at lower rates.
Therefore, why is quantitative easing (central bank prints money and credits to govt or private banks, who give central bank IOU in return) likely to succeed in stimulating borrowing, when the above hasn't?what happens when loans come up for refinancing and there is less 'money' in the system. How can the asset be refinanced.
I'll tell you why not.
Because the problem isn't a lack of credit, but elevated risk aversion by borrowers, in the face of greater uncertainty in measuring risk/reward of borrowing. Yes borrowers have increased risk aversion. But if the problem wasnt lack of credit we wouldnt be having a credit crisis. TED spreads would be at historical lows (which they are not), deposit rates would be BELOW RBA rates, lending spreads would be narrow.
Printing money is an attempt by govt to furtively con the market into taking on the higher risk (debt) of valuing asset prices at current levels.....when the market is actually saying asset prices are worth less.What proportion of those asset prices are related to instristic value, and what proportion due to refinancing risk because of lack of available re-financing. There two are inter-related
And let's remember how asset prices got to where they are now. By central banks keeping rates too low for too long.Yes but you have a closure of one sector of the lending market (the shadow banking system). The risk is not at this point in time, the risk is in the future. If the shadow banking system recovers and that government printed money is in circulation, THEN we have a big problem.
Simply, going into deeper debt is not the solution for a problem created by too much debt.