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.