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News Link • Economy - Economics USA

Forget Bernanke: A Paper At Jackson Hole May Have Changed The Future Of Economics

• Business Insider

If you just knew two things about the current state of the US economy — that unemployment was unacceptably high and that inflation was subdued — you'd suggest that the proper course for the Federal Reserve would be to lower interest rates, and make money cheaper.

The problem is: interest rates are at ~0%.

This is the defining monetary puzzle of our time.

Since the crisis hit, the Federal Reserve has attempted to juice the economy through a program that's called Quantitative Easing, which is buying long-dated government bonds and mortgage backed securities It's the same scheme that the Bank of Japan has tried in its long battle against saggy growth and deflation.

The effect has been to balloon the size of the Federal Reserve Balance Sheet, as you can see in this chart, which comes The Cleveland Fed.

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