Zero Interest rate and Partial Reserve Banking

["Henry C.K. Liu" <hliu@xxxxxxxxxxxxxx>]

Aside from a liquidity trap, partial reseerve banking tends to
neutralize the Fed's effort of monetary ease through lowering of the Fed
funds rate.  The Fed eases money supply through bank lending.  The
general theory is based on supply-demand realtionship of funds.  Yet the
conditions that lead to the Fed lowering the FFR also lead banks to
raise the credit standards for lending, thus widening the interest rate
spread and shrinks the demand for loans by qualified borrowers. Thus the
Fed is put in a situation of pushing a credit string.

Henry C.K. Liu