Monday, September 10, 2012

Why Is Central Bank Money Printing Not Working?

Economics 101 says a massive dose of easy money is supposed to be a reliable cure for a sluggish economy. For the first time in decades, the prescription isn’t working, to the rising frustration of central bankers in the U.S. and Europe.

Four years and more than $2 trillion after the Federal Reserve opened the money spigots following the financial collapse of 2008, the U.S. economy remains stuck in the mud.

Fed Chairman Ben Bernanke, in a widely-watched speech last month in Jackson Hole, Wyo., defended the central bank’s past decisions to churn out record-breaking volumes of cash -- a process known as “quantitative easing” -- saying the policy had prevented a much more painful recession. Bernanke also left little doubt that more money may be coming, as early as this week’s regular Fed policy meeting. 
Read the rest here.


The Anti-Gnostic said...

The false savings from money printing are hollowing out the real economy. And businesses are sitting on cash because they don't see sustainable demand.

Visibilium said...

Economics 101 says a massive dose of easy money is supposed to be a reliable cure for a sluggish economy.

Financial journalists read special textbooks that don't exist for the rest of us.

Phil said...

I think there's insufficient demand and desire to invest money in this environment. If businesses don't have customers, and investors don't see opportunities for positive real returns on capital, then the money, simply, is not wanted in the channels through which the Fed is pushing it.

The problem will come when (if) the economy does pick up and all that money sloshing around gets dumped into markets (not financial markets, but markets for products and services). Then, we may be hit with a serious inflation bubble, the taming of which would put us right back into a deep recession.

Alternatively, if the economy stays mired in its current condition, the point is going to come - probably suddenly - when all of the debt this is necessitating causes investors to run from US Treasuries and bonds as fast as they can. Thank goodness for European governments being such poor credit risks that the money flows here and holds down our interest rates. As long as investor sentiment stays that way, our primary risk will just be another crushing worldwide recession, instead of a debt-fueled collapse of our bond market and subsequent depression. (That can come later.)