The Economist: Inflation, QE and forcing the banks to lend (November 1st, 2012)

Mr Goodhart has lots of other interesting things to say about monetary policy. He thinks quantitative easing is "largely a spent force" and says it has failed to boost bank lending. By way of illustration, in Britain, the monetary base is 334% higher than it was six years ago, reserves at the central bank are 909% higher but broad money is only up 47% and bank lending to the private sector has risen just 31%, In other words, the money multiplier has collapsed.

The money multiplier is an ex-post-facto quantity, not a parameter of an actually operating process of money creation, so...

Then there is the idea of making the interest rate negative on excess reserves held at the central bank. Mr Goodhart seems to think this is a sensible idea although it might simply lead commercial banks to hold government bonds instead, rather than boost bank lending.

If that were done in the Eurozone, it would put an end to the government debt crisis, as banks wanting to hold government bonds would lower yields.

If the developed world economy continues to be sluggish, central bank minds may turn in these directions (cancelling government debt is another option). We have moved a long way from just shifting interest rates up and down by a quarter of a point.

Yeah, you may need real economists and bankers at central banks, not the kind of base rate tweakers we've had so far.

I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS