"Here’s a nice chart courtesy of Richard Koo via the folks at FT Alphaville. It shows how central banks ballooned the monetary base (reserves) after the Lehman bankruptcy.
Here’s the thing though, money supply flatlined as the money multiplier plummeted. See the lines at the bottom?
What gives?
Koo says that liquidity does not always translate to increased bank lending and suggests that this is because we are in a "liquidity trap". I like the first part of his analysis but not the second part. I mentioned this last May, writing:..."
at http://www.creditwritedowns.com/2012/03/monetary-transmission-mechanisms.html
Here’s the thing though, money supply flatlined as the money multiplier plummeted. See the lines at the bottom?
What gives?
Koo says that liquidity does not always translate to increased bank lending and suggests that this is because we are in a "liquidity trap". I like the first part of his analysis but not the second part. I mentioned this last May, writing:..."
at http://www.creditwritedowns.com/2012/03/monetary-transmission-mechanisms.html
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