Blockages in the Monetary Transmission Mechanism
click for ginormous graphic

 

 

Fascinating chart from Joseph Brusuelas, Senior Economist at Bloomberg that details monetary blockages.

This IMO helps to explain why ZIRP’s more modest impact on the broader economy than the outsized  impact we see on risk assets

Joe is my newest Friday Follow on Twitter: @joebrusuelas  (Not what about getting Richard Yamarone on Twitter?)

Category: Digital Media, Federal Reserve, Trading

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

11 Responses to “Monetary Angioplasty Required”

  1. Lee Adler says:

    The failure of mainstream economists to understand the monetary policy transmission mechanism is illustrated by this chart. Monetary policy is transmitted via the trading accounts of the Primary Dealers. That’s how money begins its path to reaching reserves. The dealers are the transmission mechanism. They get it first. They are the deciders of how to distribute it.

    When the Fed purchases Treasuries or MBS from the Primary Dealers, it credits their accounts at the Fed for the purchase. Therefore, the first response to any Fed direct policy action is via the markets. Everything else is a derivative of those first trades the dealers make once the Fed has made the purchases from them. The Primary Dealers are the funnel through which all conventional monetary actions flow.

    This chart leaves that out. It is THE first and most important pipe in a correct flow chart showing how monetary actions flow into the economy.

  2. dead hobo says:

    Yet the solution is obvious enough for a child to see. Thank you for bringing the point home with such clarity. You should send a copy of this to Europe. This could save them.

  3. BITFU Search Engine says:

    Now that the Benank is speaking, beware of the Internet “Austrian”.

    Q: How do you know you’re dealing with an Internet “Austrian”?

    A: An Internet “Austrian” is someone who has correctly predicted FIFTEEN out of the last ZERO episodes of hyper-inflation. [Courtesy of Scott Sumner's blog.]

  4. Moopheus says:

    Really? A red box with the word “blockage” is an explanation?

  5. Lee Adler says:

    I have posted a slightly more detailed and explanatory version of my comment above. http://wp.me/p2r1d8-tWm

  6. sureseam says:

    Once you have reduced interest rates close to nominal zero and beyond real zero, you have a problem.

    If it hasn’t worked yet; then what do you do for an encore?

  7. jaymaster says:

    Just skip to the bottom and focus on that blue box that says “Aggregate Demand”.

    Until there is more pull there, none of the channels matter much.

  8. socaljoe says:

    Let’s not forget about the blockage of free market price discovery for all assets due to ZIRP.

  9. kaleberg says:

    That’s a fascinating chart, but isn’t a big chunk of aggregate demand from people who work, get paid and buy things with the money? Isn’t that at least 50% of aggregate demand in the US?

    I know this is from the Fed’s point of view, but it’s like that New Yorker picture which has the distance from Fifth Avenue to the Hudson River the same as that from the Hudson to the Pacific. The horrible thing is that this seems to be their actual point of view.

  10. philipat says:

    Steve Keen was correct then? When can I expect my cheque?

  11. [...] by Bloomberg’s Joe Bruesuelas this morning that purports to show the reason behind “ZIRP’s more modest impact on the broader economy than the outsized impact we see on risk asset….”  I don’t mean to single out Mr. Brusuelas here. He’s a great guy, and from [...]