The Weak Recovery Isn't About Liquidity Traps
Posted at 1:15 p.m. on Dec. 26, 2012
Cullen Roche explains why government policy has failed to boost the money supply and, by extension, the economic recovery.
“In short, fiscal policy hasn’t been the equivalent of increasing the money supply in the traditional ‘money printing’ sense that most believe and QE has most certainly not resulted in an increase in the money supply because the primary transmission mechanism is busted.”
“So, how does the money supply primarily increase? It increases primarily when banks make loans which create deposits. And why has this mechanism been broken? Because private actors were saddled with debt from the credit bubble and no longer had the incomes to service these debts when the bubble burst. Private actors weren’t choosing to sit on their liquid balances. They had no choice.”