{"id":6626,"date":"2013-02-05T02:00:16","date_gmt":"2013-02-05T07:00:16","guid":{"rendered":"http:\/\/goldstocksforex.com\/?p=6626"},"modified":"2013-02-05T02:00:16","modified_gmt":"2013-02-05T07:00:16","slug":"why-qe-is-not-working","status":"publish","type":"post","link":"https:\/\/thepatientinvestor.com\/index.php\/2013\/02\/05\/why-qe-is-not-working\/","title":{"rendered":"Why QE is not working"},"content":{"rendered":"

Lars Christensen, Chief Analyst at Danske Bank, quotes David Beckworth in this lengthy but excellent 2011 paper on Market Monetarism — The Second Monetarist Counter-\u00adrevolution<\/em>:<\/p>\n

“…..Declines in the money multiplier and velocity have both been pulling down nominal GDP. The decline in the money multiplier reflects: (1) the problems in the banking system that have led to a decline in financial intermediation as well as (2) the interest the Fed is paying on excess bank reserves. The decline in the velocity is presumably the result of an increase in real money demand created by the uncertainty surrounding the recession. This figure also shows that the Federal Reserve has been significantly increasing the monetary base, which should, all else equal, put upward pressure on nominal spending. However, all else is not equal as the movements in the money multiplier and the monetary base appear to mostly offset each other. Therefore, it seems that on balance it has been the fall in velocity (i.e. the increase in real money demand) that has driven the collapse in nominal spending.”<\/p><\/blockquote>\n

Beckworth continues:<\/p>\n

“[the] sharp decline in velocity appears to be the main contributor to the collapse in nominal spending in late 2008 and early 2009 as changes in the monetary base and the money multiplier largely offset each other. It is striking that the largest run-\u00adups in the monetary base occurred in the same quarters (2008:Q3, 2008:Q4) as the largest drops in the money multiplier. If the Fed’s payment on excess reserves were the main reason for the decline in the money multiplier and if the Fed used this new tool in order to allow for massive credit easing (i.e. buying up troubled assets and bringing down spreads) without inflation emerging, then the Fed’s timing was impeccable. Unfortunately, though, it appears the Fed was so focused on preventing its credit easing programme from destabilising the money supply that it overlooked, or least underestimated, developments with real money demand (i.e. velocity). As a consequence, nominal spending crashed.”<\/p><\/blockquote>\n

Christensen concludes:<\/p>\n

Subsequent events have clearly proven Beckworth right and it is very likely that had the Federal Reserve not introduced interest on excess reserves then the monetary shocks would have been significantly smaller.<\/p><\/blockquote>\n

From Market Monetarism – The Second Monetarist Counter-\u00adrevolution<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Lars Christensen, Chief Analyst at Danske Bank, quotes David Beckworth in this lengthy but excellent 2011 paper on Market Monetarism — The Second Monetarist Counter-\u00adrevolution: “…..Declines in the money multiplier and velocity have both been pulling down nominal GDP. The decline in the money multiplier reflects: (1) the problems in the banking system that have … <\/p>\n

Continue reading “Why QE is not working”<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_mo_disable_npp":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[31,34],"tags":[2238,2340,2355,2470,3593],"class_list":["post-6626","post","type-post","status-publish","format-standard","hentry","category-the-fed-banks-interest-rates","category-us-canada-countries-regions","tag-market-monetarism","tag-monetary-base","tag-money-multiplier","tag-ngdp-targeting","tag-velocity-of-money"],"yoast_head":"\nWhy QE is not working - the patient investor<\/title>\n<meta name=\"robots\" content=\"noindex, follow\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Why QE is not working - the patient investor\" \/>\n<meta property=\"og:description\" content=\"Lars Christensen, Chief Analyst at Danske Bank, quotes David Beckworth in this lengthy but excellent 2011 paper on Market Monetarism — The Second Monetarist Counter-\u00adrevolution: “…..Declines in the money multiplier and velocity have both been pulling down nominal GDP. 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