= 27d567bc2d48d9f40e9ccc20ea370b15)
CronoDAS comments on After critical event W happens, they still won't believe you - Less Wrong
You are viewing a comment permalink. View the original post to see all comments and the full post content.
= 783df68a0f980790206b9ea87794c5b6)
Loading…= b715d02e85f7b3b4ae65ca3d3e450868)
Subscribe to RSS Feed
Powered by Reddit
= f037147d6e6c911a85753b9abdedda8d)
You are viewing a comment permalink. View the original post to see all comments and the full post content.
Comments (104)
When interest rates are virtually zero, cash and short-term debt become interchangeable. There's no incentive to lend your cash on a short-term basis, so people (and corporations) start holding cash as a store of value instead of lending it. (After all, you can spend cash - or, more accurately, checking account balances - directly, but you can't spend a short-term bond.) Prices don't go up if all the new money just ends up under Apple Computer's proverbial mattress instead of in the hands of someone who is going to spend it.
See also.
Sorry for the late comment but I'm just running across this thread.
But as far as I know the mainstream economists like the Fed did not predict that this would happen; they thought quantitative easing would start banks (and others with large cash balances) lending again. If banks had started lending again, by your analysis (which I agree with), we would have seen significant inflation because of the growth in the money supply.
So it looks to me like the only reason the Fed got the inflation prediction right was that they got the lending prediction wrong. I don't think that counts as an instance of "we predicted critical event W".