It’s not just him, the all say ‘quantitative easing’ will ‘work’ when they should now have enough evidence and theory to know all it does is lower interest rates which are already plenty low with regards encouraging lending.
Might just be managing expectations but more likely they still actually believe it.
*DJ Fed’s Bullard: Worried About Possible Deflationary Outcome For US(DJ)
*DJ Bullard: Says More Quantitative Easing Will Work(DJ)
*DJ Bullard: Says Deflation Not Most Likely Economic Scenario(DJ)
*DJ Fed’s Bullard: Most Likely Scenario Is That Recovery Will Continue(DJ)
*DJ Bullard: Acknowledges Weaker US Data Over Last Two Months(DJ)
*DJ Bullard: Euro Zone Has Done Reasonable Job Containing Crisis(DJ)
And the banks are afraid to lend. The borrowers are afraid to borrow when they don’t have enough buffer to assure themselves in case they get suckerpunched again. The Government continues to destroy private spending power via taxation.
It seems like the Gov is TRYING to cause deflation.
Mish is very downbeat on the latest GDP revisions, why does anyone believe this propoganda from the government anymore. Agreed Warren on the futility of interest rates, where are the people in government who see outside of the “banking” spectrum and realize we need a subsidized jobs program to build cities and infrastructure like the “venus” project. I commend you Warren for being a banker who owns a bank but can think outside the “banking” box.
http://globaleconomicanalysis.blogspot.com/2010/07/gdp-3-years-of-massive-downward.html
Ponder the effect on consumer spending plans. Credit card rates are north of 20%. The savings deposit rate at banks is 1%. Any consumer in his right mind has every incentive to pay down their credit cards and not spend more.
Think about that. Consumers can get effective rates of return on their money by paying off credit cards or other consumer debt and not charging more. Will forcing long-term rates lower change this picture? Of course not. Ironically, it will cause the savings rate to rise (simply by increasing the incentive to pay down debts at much higher interest rates!)
Thoma on interest paid on reserves:
http://economistsview.typepad.com/economistsview/2010/07/some-observations-regarding-interest-on-reserves.html
Depends on how you want to define QE. If the Fed buys new debt that the government issues to “finance” a new wave of spending then it may look as if the QE works, when it’s really the spending that helps.
But all that QE has done so far is run up excess reserves (and load up the Fed’s balance sheet with dreck). Why would more QE be different?