tag:blogger.com,1999:blog-3399546775946309435.post1195418745468194525..comments2023-12-27T16:07:31.838-08:00Comments on The Econtrarian: Response to Gulliver Travails’ Comment on “Unless the Fed Goes Cold Turkey …”Paul Kasrielhttp://www.blogger.com/profile/03284214951073377347noreply@blogger.comBlogger1125tag:blogger.com,1999:blog-3399546775946309435.post-61473704275769811802013-12-03T14:19:49.521-08:002013-12-03T14:19:49.521-08:00Thanks for the thorough reply. I think you rightl...Thanks for the thorough reply. I think you rightly point out that this comes down to a question of the velocity of bank reserves and deposits. In a world of excessive leverage, near-zero interest rates, interest paid on excess reserves and deposit insurance, I think it's arguable that reserves are a near perfect substitute for government securities held by banks, and deposits are a near perfect substitute for government securities held by non-banks. If that's the case, banks will happily sit on excess reserves swapped for bonds, and the non-bank public will willingly hold bank deposits in lieu of bonds. In such a scenario, QE is unlikely to significantly impact spending though it is likely to goose risk asset prices. But you might be right that risk appetites are rising, in which case we could have a little economic boom next year.<br /><br />As for whether it would have been preferable over the last few years to see weak nominal spending AND weak asset prices, that sounds like a good subject for an Austrian PhD thesis. My hunch is that it's too soon to answer that question---ask me again in ten years. :-)Gulliver's Travailshttps://www.blogger.com/profile/14275244541382621899noreply@blogger.com