Can the Fed Jumpstart Growth?
In my Fiscal Times column this morning I look at the Fed's options and constraints in terms of stimulating growth through monetary policy now that additional fiscal stimulus is effectively off the table.
The problem is that the banks
The problem is that the banks are simply getting loans for free from the American government and using it for cheap investments in the Developing World. There are clear signs of both a Real Estate and a Stock Bubble in Brazil, as far as I know.(It´s cheaper to buy a house in Las Vegas ou in Miami than in several suburbs of São Paulo city, even ignoring Purchasing Power Parity).
The problem is also that since interest rates are too low banks have few incentives to lend. There is also less incentive to put money on savings accounts, essentially the money that banks uses to provide loans.
The bigger problem is the debt, essentially because no country can have high debt ratios and low interest rates. Specially if the Chinese can´t buy more American Debt. The best thing to do would be a realistic approach to the debt and realistic interest rates. We don´t need more bubbles, please.
I only did a very quick skim,
I only did a very quick skim, but the Fed paying interest on excess reserves is a huge factor that obscures the apparent expansion of the money supply. Seriously, read Scott Sumner on the issue. The Fed was explicit that it wanted to avoid creating inflation, so it has been neutralizing injections and going on and on about "exit strategies". They need to create expectations of inflation!