Reply To: Money sitting on the side


I can appreciate the fact that the lack of lending indicates that the interest rate has fallen as a result of a drop in demand for money. On the other hand, what of the massive increases to M1 and M2 over the past few years? Didn’t they give a tremendous amount of liquidity to the banks? If so, does this glut of high powered money not also put tremendous downward pressure on interest rates or does it not because that money is not being lent now anyways?