Paul Krugman

@paulkrugman ↗

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Last Checked Dec. 10, 2021

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Tue Oct 26 19:11:51 +0000 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

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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

And that in turn meant that at the margin M0 and Treasuries were perfect substitutes — two assets with the same (zero) rate of return. Conventional open-market operations therefore did nothing — investors were already saturated with liquidity, increasing M0 added nothing 6/ — PolitiTweet.org

Posted Oct. 26, 2021