March 2009 Archives

Sounds like Brent wants svk.

This Paul Krugman blog post finally answers the question I had about current Fed policy (that I didn't know who to ask):

"What comes down to is this: once you've pushed the short-term interest rate down to zero, money becomes a perfect substitute for short-term debt. And any further increase in the money supply therefore displaces an equal amount of debt, with no effect on anything. Period, end of story."

I hadn't thought of money becoming a perfect substitute for short-term debt, so missed this idea (and was wondering why the Fed wasn't just increasing M).

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