Amidst all the pearls of wisdom unleashed in mainstream economics over the past unbelievable eight years or so, it was one paragraph of common sense that had it been written and appreciated at the start of this period might have saved us all the inordinate and totally unwarranted trouble.
But borrowers will only demand more credit if they have optimistic expectations of future income - and banks will only supply it if they deem them creditworthy. Interest rates, which is [sic] all ECB policy can affect, are less important than economic expectations.
That was published by the Wall Street Journal in an article describing how European banks are largely if not completely at the margins indifferent to QE and NIRP. Monetarism has failed on every count and by every standard. QE was supposed to be a simultaneous boost to liquidity, a push on banks (into lending) from “portfolio effects”, and then via price channels a huge lift to those very economic expectations.
None of it worked anywhere it was tried. Full stop.
The worst part is that anyone operating on common sense rather than ideology knew it wouldn’t work right from the start at the very least because of the reasons stated in that exact paragraph. Throw in some continued monetary irregularity and there was no chance.
Ben Bernanke claimed that savers would benefit from their disturbed position once QE had performed its magic largely upon expectations – the full recovery would push interest rates back up to their natural position whatever that might be. Savers and investors are still waiting and with interest rates lower now than when QE was in effect; despite Bernanke’s successor having “raised rates” in the meantime.