Jerry O'Driscoll Sums up the Situation in Financial Markets

Bob Higgs has a post on why hyperinflation hasn't occurred in the US.

Pete Boettke has a post on Bob Higg's post.

Jerry O'Driscoll made a comment on Pete's post.

Though two degrees removed from the initial commentary, Jerry's observations are spot-on and wonderfully succinct. I thought that they were worth repeating here.

Some of the reserve creation has supported lending overseas. And asset bubbles.

Banks are capital-constrained, which works on the supply side of credit. Individuals and companies are still deleveraging, which curtails demand for credit.

For two years, I have heard the same refrain from bankers. They have two types of customers: (1) those flush with cash who do not want to borrow; and (2) those who want to borrow, but who are poor credit risks.

The prime lending rate is not really a market rate. LIBOR is much more market-sensitive. Business loans are priced over LIBOR. That rate is still pretty low. Getting 25bp on reserves is a risk-free alternative to lending.

The near-zero Federal funds rate has torpedoed the interbank market. There is not enough return for the risk of lending to other banks.

For interested parties, going back to Higg's initial post is well worth the while.