30 November 2008

Liquidity Preference

I'm not so sure about this idea of Arnold Kling's.

If it gets pricier to stay liquid with Treasury securities then it will be less attractive to acquire said securities. However, this does not solve the counter-party trust issues. If firms still don't trust each other they will still demand some type of collateral. If it's too expensive to use Treasury securities then what will be used? Cash?

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