In response to Free Money! Banks Paid $22 Billion to Not Lend? I received a comment from economist Professor George Selgin who said I do not know what I am talking about.

Selgin made similar comments about Chris Whalen, Chairman of Whalen Global Advisors LLC,  in two supporting links.

I also received a Tweet from economist Professor Steve Keen who said: "Mish Nails It".

Both viewpoints cannot be right. Let's explore competing viewpoints on lending excess reserves, banks hoarding cash, and free money banks receive from the Fed for interest on excess reserves.

Mish Statements

Excess reserves are a function of the Fed's balance sheet and those reserves do not change whether a bank lends more or not.

There is no "demand" for excess reserves. Rather, the Fed has crammed excess reserves into the system and has decided to pay interest on them.

Mathematically speaking, excess reserves cannot spur lending.

Banks are not paid $22 billion to "not lend" $2.2 trillion as many contend.

Banks are paid $22 billion because the Fed decided to do so.