Paul Krugman

@paulkrugman ↗

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Last Checked Dec. 10, 2021

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Tue Oct 26 19:10:16 +0000 2021

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Paul Krugman @paulkrugman

Normally an open market operation, in which the Fed increases the monetary base by buying Treasuries, has major effects because M0 is the medium of exchange, which means that people hold it despite a zero interest rate for the sake of liquidity 4/ — PolitiTweet.org

Posted Oct. 26, 2021

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Paul Krugman @paulkrugman

Obviously monetary base (M0) grew enormously, M2 some but not much, GDP even less. So as a matter of arithmetic velocity of either M0 or M2 fell. But why? Because M0 was in a fundamental sense disconnected from GDP 3/ — PolitiTweet.org

Posted Oct. 26, 2021

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Paul Krugman @paulkrugman

So increasing M0 increases liquidity, which sort of rolls through the economy via lower interest rates. But from late 2008 on the interest rate on short-term Treasuries was essentially zero, which meant that holding monetary base was costless 5/ — PolitiTweet.org

Posted Oct. 26, 2021