A debate is being played out today in the Fed about whether it should return
to the so-called "quant easing" -- buying more mortgage-backed securities,
Treasury bills, and other bonds -- in order to lower the cost of capital still
further.
The sad reality is that cheaper money won't work. Individuals aren't borrowing because they're still under a huge debt load. And as their homes drop in value and their jobs and wages continue to disappear, they're not in a position to borrow. Small businesses aren't borrowing because they have no reason to expand. Retail business is down, construction is down, even manufacturing suppliers are losing ground.
That leaves large corporations. They'll be happy to borrow more at even lower rates than now -- even though they're already sitting on mountains of money. ..................... (more)
The sad reality is that cheaper money won't work. Individuals aren't borrowing because they're still under a huge debt load. And as their homes drop in value and their jobs and wages continue to disappear, they're not in a position to borrow. Small businesses aren't borrowing because they have no reason to expand. Retail business is down, construction is down, even manufacturing suppliers are losing ground.
That leaves large corporations. They'll be happy to borrow more at even lower rates than now -- even though they're already sitting on mountains of money. ..................... (more)
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