Here’s why Ben Bernanke made a big mistake by effectively tightening monetary policy with all his taper talk: Since 2008, the US economy has been suffering a massive shock to money demand, which the Federal Reserve has failed to fully satisfy. Let’s look at just one bit of data, which economist David Beckworth has in the past pointed to as relevant.
Here are household deposit assets and government bonds as a share of total household assets. Looks to me like Americans still want to be pretty liquid, reflecting a lack of certainty about future nominal income. That doesn’t say easy Fed to me.
And, of course, let’s look at long-rates which have been backing up but are still pretty low. Why? Because of ongoing economic weakness that has decreased the demand for credit, both here and globally.
And as I mentioned earlier, we have not seen a huge increase in the broad money supply since 2008.