Saving and lending at the zero bound is marked by two characteristics — rising savings but stagnant lending:
This tallies with the data on savings as a percentage of GDP against base rates that I noted in April:
The fact that the Fed has pushed large quantities of liquidity out into the system and kept interest rates at zero while failing to lift the systemic appetite for credit shows that the Fed can take the horse to water, but can’t make it drink.
Perhaps the weakness in credit appetite is symptomatic of the fact that there is so much pre-existing debt in the system that people and businesses are struggling to pay off?
If that is the case then if the Fed would turn the monetary hose onto expunging debt — i.e. have a private debt jubilee — then monetary policy at the zero bound might become effective again in stimulating credit appetite.