Monetary disorder in extremis
“Lost in the discussion is the fact that we’re in the throes of a historic experiment in central bank monetary management. The Fed some years ago abandoned the traditional mechanism of operating chiefly through the banking system with subtle adjustments to reserves and interbank lending rates – a process arguably superior at disbursing resources more proportionately throughout the economy. Having evolved over the past couple decades, the Fed now executes policy directly through the securities markets. Policy stimulus enters the system chiefly through massive purchases of Treasury and agency securities, creating liquidity excess for financial markets more generally. Moreover, low (now zero) rates foster stimulus effects through the promotion of leveraged speculation and by spurring speculative flows into higher-yielding (riskier) securities and other assets.”
USAGOLD note: We are still waiting for the Fed’s largesse to parade down Main Street. As it stands, the only parade thus far has been on Wall Street – a subject Noland more fully addresses at the link above.