Perhaps the most novel (and perhaps effective) suggestion to free up credit and keep banks from hoarding Fed injections:
2. Easy Reforms: Eventually I will get to quantitative easing, but there are some even easier steps that could make the problem much more manageable, without incurring the risks of highly unconventional policies. One easy step would be to stop paying interest on reserves. These interest payments increase the demand for reserves, and are thus deflationary (as were the reserve requirement increases of 1936-37.) Of course this would make T-bill yields immediately fall to zero, and banks would still probably hoard substantial amounts of reserves. But then why not go one step further and charge an interest penalty on excess reserves? That would end the current problem of banks treating reserves and T-bills as near perfect substitutes. Yes, it wouldn’t solve that problem with respect to cash held by the public, but so far most of the hoarding of base money has been done by banks. (This is probably because, unlike during the early 1930s, deposits are now FDIC insured.) I don’t know if the interest penalty idea would work, but the Fed should certainly consider it. [More, worth wading through]As of this morning, the banking crisis is reasserting itself as THE issue to be dealt with before consumer actions can be modified. Charging "negative interest" is a stunning idea, but I follow the logic that it would be low cost and powerful. Do you get the sense that any government action is now possible as we look for new kitchen sinks to throw at this problem?
I also suspect that detractors of government intervention (other than any directed directly to their bottom line, of course) will see their numbers dwindle as adherents lose jobs, retirement funds, and futures. Sadly, the calls for fiscal discipline could not have come at a worse time for the Republican party, I suspect. Aside from the impossible-to-hide hypocrisy, as events demonstrate a deepening crisis such the fallout from not stimulating becomes more apparent daily. For example, consider Sen. Shelby's commitment against auto company bailouts if Toyota closed a couple of AL factories. The risk a resurrecting Hooverism is now looming large with similar political results likely.
Much to my dismay, we are not having much luck restarting our banking system, and it appears at this time even more wealth will have to disappear before finding a bottom. I think this impression could be highly suspect, as I perhaps follow the day-to-day developments more closely than is healthy.