Monday, February 22, 2010
The Monetary channel...a continuing series...
Bernanke will be peppered with questions regarding mortgages, Fannie, Freddie, the FOMC, and the FHA. He will hopefully refer to the graph reproduced here.
He will also be questioned about QE, increased bank reserves, and monetary aggregates no doubt.
But the monetary channel is still broken.
Bernanke should be questioning the committee about their commitment in stoking aggregate demand and the only way to put more cash in people's pockets is tax decreases, deficit be damned. The current increase in national savings is on a smaller asset base, and tax decreases are a more efficient means of stoking real aggregate demand than monetary policy that relies on disintermediation when the disintermediators are hoarding cash due to unstable capital markets. The scale of our larger banks (the ones who benefited most from the TARP and bail-outs) is hurting lending supply and lending demand.