The United States is sliding towards a dangerous 1930s-style "liquidity trap"
"The mechanism of monetary policy is ineffective in these circumstances. I'm not saying it won't work at all: it will help the banking system but the credit squeeze is going to go on because nobody trusts anybody else. The Fed is pushing on a string," he said.
The grim comments came as markets continued to suffer wild gyrations, reacting to every sign of contagion spreading to Europe, Asia, and emerging markets.
Wall Street has begun to stabilize on talk of a rescue for the embattled bond insurers, MBIA and Ambac.
The Fed's 75 basis point rate cut allows the banks to replenish their balance sheet by borrowing at short-term rates and lending longer term, playing the credit 'carry trade', hence the 9pc rise in the US financials index yesterday. But confidence remains fragile.
Professor Stiglitz, former chair of the White House Council of Economic Advisers, said it takes far too long for monetary policy to work its magic. This will not gain much traction in the midst of a housing crash. ...
http://www.telegraph.co.uk/money/ma...VCBQUIV0?xml=/money/2008/01/24/bcnstig124.xml
"The mechanism of monetary policy is ineffective in these circumstances. I'm not saying it won't work at all: it will help the banking system but the credit squeeze is going to go on because nobody trusts anybody else. The Fed is pushing on a string," he said.
The grim comments came as markets continued to suffer wild gyrations, reacting to every sign of contagion spreading to Europe, Asia, and emerging markets.
Wall Street has begun to stabilize on talk of a rescue for the embattled bond insurers, MBIA and Ambac.
The Fed's 75 basis point rate cut allows the banks to replenish their balance sheet by borrowing at short-term rates and lending longer term, playing the credit 'carry trade', hence the 9pc rise in the US financials index yesterday. But confidence remains fragile.
Professor Stiglitz, former chair of the White House Council of Economic Advisers, said it takes far too long for monetary policy to work its magic. This will not gain much traction in the midst of a housing crash. ...
http://www.telegraph.co.uk/money/ma...VCBQUIV0?xml=/money/2008/01/24/bcnstig124.xml
In fact; China just become the biggest trading nation with Japan;