Strangely, Ben failed to explicitly mention the burden on governments and banks that have accumulated substantial debt, which is what the current problems are about. I suspect he secretly refers to these entities when he refers to "firms" but I think he should have been a little more explicit about his own self interest in the matter.
"Although deflation and the zero bound on nominal interest rates create a significant problem for those seeking to borrow, they impose an even greater burden on households and firms that had accumulated substantial debt before the onset of the deflation."
Each day I am more and more convinced that if the banking system collapsed the only people that would notice are the bankers; and those banks with crazy loan portfolios are not going to be repaid anyway, so what's the big deal? The bankers need a good smack on the side of the head that bankruptcy would provide.
Obama, God bless his ignorant soul, keeps repeating the mantra that "credit is the lifeblood of our financial system." "Banks are not lending," he says. But in fact, banks are lending - they are lending to entities that are qualified. Does Obama want a return to the crazy-ass loan-making fever we just went through? Nobody is loaning GM money because it's a bad idea - not because they don't have the money to lend out.
Maybe the problem isn't supply but demand - there isn't demand for loans because the previous demand was from people that should never have qualified for a loan. Therefore you can give banks as much money as you want but the only way to get credit flowing is to return to making bad loans.
This does not strike me as a good idea!
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