March 2009 Archives
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).
