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Wednesday, October 29, 2008
"This figure shows the money multiplier peaked the week of 6/4/08 and begin a sharp descent in late August."
It's actually worse than this, pgl. The Fed, by upping the rate it pays for these excess reserves, is encouraging banks to not lend in order to finance its rescue agenda. That is, credit is being constrained today in order to repair institutions in the hope they will provide credit tomorrow. But how long is tomorrow? How far will the economy drop in the meantime? How will this drop affect lenders' balance sheets and push tomorrow further out into the future?
I am coming to think that the entire strategy, even if diligently pursued, is misguided.
It's actually worse than this, pgl. The Fed, by upping the rate it pays for these excess reserves, is encouraging banks to not lend in order to finance its rescue agenda. That is, credit is being constrained today in order to repair institutions in the hope they will provide credit tomorrow. But how long is tomorrow? How far will the economy drop in the meantime? How will this drop affect lenders' balance sheets and push tomorrow further out into the future?
I am coming to think that the entire strategy, even if diligently pursued, is misguided.
October 29, 2008 1:16 PM