The current problem is that as risk aversion subsides and liquidity preference becomes more normal, the entirely abnormal liquidity balances sloshing around in bank and money market accounts have begun to be deployed by business and individuals.Thus far, most of these deployments (and the attendant acceleration of monetary velocity) have been directed to the purchase of investment goods, causing the prices (and volumes) of assets as junk bonds and stocks represented in index ETFs such as SPDR S&P 500, PowerShares QQQ and SPDR Dow Jones Industrial Average to rise. By contrast, relatively little of the excess liquidity in the financial system has flowed into the real economy to stimulate the production of goods and services.
The Fed's Jedi Mind Trick
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