Richard Koo of Nomura spoke to Bloomberg Television’s “InsideTrack” this morning. He details why monetary policy has been ineffective in dealing with this recession.
- 0:50 The market is telling us this is no ordinary recession. The private sector’s goal is to minimize debt, not maximise profits right now. People with balance sheets underwater will not take on debt at any rate. Monetary policy in this scenario is ineffective.
- 2:00 Mr. Bernanke gets it. It is not the time to cut fiscal stimulus. What the Fed can do is very limited.
- 2:50 The Fed had to do something. But the money supply didn’t grow as much as it was spurred to do. QE didn’t do much, but didn’t do much harm, beyond the rise in commodity prices.
- 3:30: “With zero interest rates for two years we should be seeing three or four bubbles by now.”
- 5:25 The fact that the private sector is still deleveraging at zero interest rates means we need the government to spend.