According to the BEA, in December people got more money but didn’t spend it; rather, they seem to have saved the balance. But what does that mean? Presumably much of that money was placed in banks. So are banks lending more?

According to the Fed, maybe. And it seems like the total reserves of depository institutions with the Fed is also declining slowly from its massive spike this past spring and summer.

It seems to me that not nearly enough attention is being paid to the fact that the Fed is still paying interest on both required reserves and excess reserves. This seems to be a massive disincentive from the kind of desirable risk-taking in bank lending that allows would-be homeowners to buy and would-be businesspersons to start up. As long as the Fed is giving free money to banks in exchange for not lending we’re not going to see capital hunt for returns with the kind of ferocity one would hope for in engineering recovery.