54 THE BiG DROP
Banks don’t need reserves to lend. They’ll make the loan and
then go get the reserves. The fact that the Federal Reserve is
throwing reserves at the banks does not mean that people
want to borrow and it does not mean banks want to lend.
In fact, people don’t want to borrow and the banks don’t
want to lend. This is why we’re seeing that some of the hottest
companies around are Lending Tree and Social Finance. These
are peer-to-peer lenders.
People use Internet platforms to dis-intermediate the
banks. They take the banks out of the equation and say, “Hey,
there are people over here with money and people over there
who want to borrow money. We’ll match the two online.”
Essentially, it’s like an Uber for money lending.
You wouldn’t have the opportunity for peer-to-peer lending
if the banks were doing their job. Right now, they’re not doing
their job. The short answer why is that reserves are never con-
strained on lending. The banks can lend all they want. Then
they’ll go get the reserves if they need them. That’s why all of
the reserves are piling up right now.
This could lead to what’s called “helicopter money.”
Helicopter money is the way the government takes the banks
out of the equation. The banks aren’t doing their jobs — they’ve
been given all this money by the Fed, but they’re not lending
it. Candidly, people don’t want to borrow, at least not on the
terms the banks are offering.
The private sector solution to that problem is peer-to-peer
lending. But there’s also a government solution, which is he-
licopter money. The image people think of is the Fed printing
a lot of money and then dumping the bills out of sacks from
a helicopter in the skies above. Then, people are supposed to
run around, scoop that money up and go spend it.
That’s a nice image, but the way it actually works is that
the government cut taxes, starting with the payroll tax. Half
the people in American don’t pay income tax. A lot of people