Thursday, February 4, 2010

The monetary policy...

...of low interest rates does not appear to having the desired effects. One of the problems with monetary policy today relative to previous crisis situations is the revolution of finance that has sliced up and securitized cash flows from an enormous spectrum of assets.

This supply is of course balanced by a global demand for assets denominated (at least in this present era) in U.S. dollars. The persistent Current Account deficit (and therefore Capital Account surplus) attest to this.

Now, lower interest rates do not help the purchasers of financial instruments, and the effects on aggregate demand due to low interest rates has not been examined in great detail.

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