As you know, Mister Chairman, in a Liquidity Trap although Saving (S) is abnormally high investment (I) is next to 0.
Hence, the Keynesian paradigm I = S is not verified.
The purpose of Quantitative Easing being to lower the yield on long-term government debt and provide liquidity to the Market, it doesn't create $1 of investment.
The last thing the Market needs in a Liquidity Trap is liquidity. This is why, Mister Chairman, we call it a Liquidity Trap.
Force-feeding it will achieve no purpose whatsoever.
Quantitative Easing does diminish the yield on long-term US Treasury debt but lowers marginally, if at all, the asked yield on savings.
Long-term treasury bonds are hence unfairly priced.
But purchasing risky assets on the open market at an excessive price you are maintaining the demand for long-term assets in an unstable equilibrium.
When this disequilibrium resolves, and it necessarily will, the Market will turn chaotic.
This and other issues are explored in the tract I wrote to your intention:
A Specific Application of Employment, Interest and Money
Plea for a New World Economic Order
Abstract:
This tract makes a critical analysis of credit based, free market economy, Capitalism, and proves that its dysfunctions are the result of the existence of credit.
It shows that income / wealth disparity, cause and consequence of credit and of the level of long-term interest-rates, is the first order hidden variable, possibly the only one, of economic development.
It solves most of the puzzles of macro economy: among which Unemployment, Business Cycles, Under Development, Trade Deficits, International Division of Labor, the Price of Minerals, Stagflation, Greenspan Conundrum, Ben S. Bernanke Saving Glut, Deflation and Keynes' Liquidity Trap...
It shows that no fiscal or monetary policy, including the barbaric Quantitative Easing will get us out of depression.
If short-term risk free interest rates are at 0.00% doesn't that mean that credit is worthless?
A Credit Free, Free Market Economy will correct all of those dysfunctions
You Need, Hence, Mister Chairman, Abolish Interest Bearing Credit and Cancel All Interest Bearing Debt.
.
The alternative would be to wait till, on the long run, most of our productive assets get physically destroyed either by war or by rust. It will be either awfully deadly or dramatically long.
A Specific Application of Employment, Interest and Money
http://edsk.org/
Our Proposed Exit Strategy out of Credit
http://edsk.org/
I am, Mister Chairman, Yours Sincerely,
Shalom P. Hamou AKA 'MC Shalom'
Chief Economist - Master Conductor
1776 - Annuit Cœptis
