Why central bank liquidity is not moving into the real economy

One of the greatest myths about monetary policy is the presumption that pumping liquidity into the banking system will drive lending, money velocity and a multiplier effect through the real economy. Businesses (at least wise ones) only borrow and invest in people and capacity when they see demand for their product or service. And global demand has been weak and weakening further over the past many months. This is the real reason that monetary policy and even relentless attempts at “quantitative easing” are not translating into economic growth.

This clip offers a lucid discussion of these issues in the UK context but is broadly relevant. Erik Nielsen, chief global economist at UniCredit SpA, talks about U.K. bank lending and Bank of England policy. Here is a direct link.

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4 Responses to Why central bank liquidity is not moving into the real economy

  1. rolling stall says:

    The housing index is looking weak as of late. XHB

    What is all this talk of nationalizing US pension accounts and trading them in for government annuities to keep tax-deferred status? First is was ObamaCare, now ObamaPensionRaid? And you buffoons don’t like hard money in your fist yet?

  2. Roberta says:

    Gimme $10,000,000 and I’ll stimulate the economy. 🙂

  3. Roberta says:

    Probably one reason the money isn’t moving into the economy is because a good chunk of it is going to bankster and wall-street-fat-cat pay, bonuses and benefits. Another chunk is probably being skimmed off the top illegally.

    I wonder if the banksters perceive the coming collapse and the general decay of society and view themselves as John Galt? Maybe they are using the “liquidity” to buy gold and a south pacific island or two? Getting ready to bail out and disappear.
    Could be.

  4. aliencaffeine says:

    Don’t give up on the markets yet Roberta. In case you haven’t noticed, there is a shale oil boom beginning to blossom all across America. In fact, the Bakken in N. Dakota/Montana is so busy influxing workers, they have to live in tents cities. Same for Eagle Ford, Pennsylvania and Ohio. Scads of shale fields being opened up. Why, we is gonna be FILTHY RICH! Look at the Canadian tar sands oil. 45.00 a barrel, you haul it down to the lower forty-eight. GLUT….means much lower gasoline prices, BOOMTIME!

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