What are the Limits of Monetary Policy?

Guest Post: As M2 Money Supply Rolls Over, The Stock Market Will Follow | ZeroHedge.

If we take this post together with this one earlier today

Tyler Durden's picture

Chart Of The Year: The Fed Has Doubled The S&P Admits… The Fed

what do we have? Well, our worst fears have been confirmed. It seems like the only important factor driving the stock market is monetary policy. I think if we suddenly remove easy money then we will see a huge market panic. Eventually, the market will adjust, and fundamentals will become the most important driver in the market.

What are the limits of monetary policy? When I was in school, we had one formula for figuring out the effects of money creation. Nobody bothered adjusting the formula for additional rounds of monetary policy.

That is the problem in a nutshell. We know that monetary policy is doing less and less, but we do not have enough information to show why this is happening and how it is happening…yet.


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