The banks just stuff them into a safe haven. Hence the phrase "Pushing on a string".
Your roofing contractor might pay his employees, or he might try to do more with less people and pay off some debt. Or they might pay of some debt.
As soon as that money enters the bank, its gone, as far as the economy is concerned. It used to be that money was passed along in a long chain of transactions. Now there is a non-zero probability that at any point in the chain, the money goes into a bank to pay off debt, and at that point, its gone for good.
How do we change the bank's behavior? We have to create an economy where loaning out money is the only way to preserve value, instead of the opposite.
Except that they aren't.
http://research.stlouisfed.org/fred2/series/EXCRESNS
The banks just stuff them into a safe haven. Hence the phrase "Pushing on a string".
Your roofing contractor might pay his employees, or he might try to do more with less people and pay off some debt. Or they might pay of some debt.
As soon as that money enters the bank, its gone, as far as the economy is concerned. It used to be that money was passed along in a long chain of transactions. Now there is a non-zero probability that at any point in the chain, the money goes into a bank to pay off debt, and at that point, its gone for good.
How do we change the bank's behavior? We have to create an economy where loaning out money is the only way to preserve value, instead of the opposite.