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To: eddieww who wrote (46273)	12/11/2000 5:13:00 PM
From: Oblomov	Read Replies (1) \| Respond to of 436258

>>Why would there be a demand for cash if cash is being made plentiful. Because it isn't plentiful enough. The Fed doesn't print money, it simply makes credit more readily available. If no one is willing to borrow, or no one is willing to lend, then easing interest rates will not cause nominal prices to rise. This possibility was called "liquidity preference" by Keynes. Note that the Austrian economists reject the notion of liquidity preference. They would simply state that the time preference is very long during deflation... people would rather have cheaper goods in the future than expensive goods now. >> they must loan more at the new, higher rates if they are to make a profit instead of a loss, musn't they? Good point. This is true, but only if the lender thinks that repayment has a high probability. Loan policy is the result of a tradeoff between probability of timely repayment and inflation expectations. The late 70s were not the best times for the US economy, but they were not depressionary, either. In 1977, very few economists expected inflation to rise to their 1980 levels. But by 1980, few expected inflation to collapse...