Demand for extremely safe assets increased (people wanted to hold more money), the same reason Treasury bonds briefly went to negative returns; demand for loans decreased and this caused destruction of money via the logic of fractional reserve banking; the shadow banking sector contracted so financial entities had to use money instead of collateral; etc.
Sorry for the late comment but I’m just running across this thread.
demand for loans decreased and this caused destruction of money via the logic of fractional reserve banking
This is an interesting comment which I haven’t seen talked about much on econblogs (or other sources of information about economics, for that matter). I understand the logic: fractional reserve banking is basically using loans as a money multiplier, so fewer loans means less multiplication, hence effectively less money supply. But it makes me wonder: what happens when the loan demand goes up again? Do you then have to reverse quantitative easing and effectively retire money to keep things in balance? Do any mainstream economists talk about that?
Demand for extremely safe assets increased (people wanted to hold more money), the same reason Treasury bonds briefly went to negative returns; demand for loans decreased and this caused destruction of money via the logic of fractional reserve banking; the shadow banking sector contracted so financial entities had to use money instead of collateral; etc.
Sorry for the late comment but I’m just running across this thread.
This is an interesting comment which I haven’t seen talked about much on econblogs (or other sources of information about economics, for that matter). I understand the logic: fractional reserve banking is basically using loans as a money multiplier, so fewer loans means less multiplication, hence effectively less money supply. But it makes me wonder: what happens when the loan demand goes up again? Do you then have to reverse quantitative easing and effectively retire money to keep things in balance? Do any mainstream economists talk about that?