Rolf Englund IntCom internetional
MTC - Monetary Transmission Channels
How to solve the financial crisis?
Interest rate cuts work their way through to the real economy by a number of transmission channels.
Krugman on monetary transmission channels
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.
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,