Krugman, Keynes, Akerlof och Greenspan


Real Interest Rates

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Rolf Englund IntCom internetional

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MTC - Monetary Transmission Channels

How to solve the financial crisis?
Let me tell you a little secret, folks.
Play for time. A few years of nice profits will help offset the big losses from past blunders

Allan Sloan, senior editor CNN, August 18, 2008

Interest rate cuts work their way through to the real economy by a number of transmission channels.
Cui bono? The banks, of course. The bank-bailout channel will be the only monetary transmission mechanism to function like clockwork.

So do not be fooled by anybody who says that the central bank should cut interest rates for the benefit of innocent citizens
Wolfgang Munchau, FT January 20 2008

Krugman on monetary transmission channels
Wolfgang Munchau 14.01.2008

The current downturn/recession is brought upon by a housing slump, which according to Krugman has much further to go. So he questioned whether interest rate cuts will make even the slightest difference. The question he poses: How much would the Fed have to cut interest rates by in order to create another housing boom.

The house price correction that is necessary to restore some sanity to these markets is so severe that it will either cause a slump (i.e. more than an average recession), persistent high inflation, or some combination of high inflation and low growth.

My guess remains that the US and UK will try to inflate themselves out of their troubles.

Full text of Munchau

Full text of Krugman

What's most disturbing about our collective long-term prospects is that all anyone really talks about today is how much and how quickly the Fed needs to cut interest rates,
how much and how soon fiscal stimulus should be applied, and whether we'll avoid a recession completely or just have a mild one as we've been trained to expect.
Tim Iacono, January 14, 2008