Robert Prechter writes (emphasis added):

Economists hint at the Fed’s occasional impotence in fostering credit expansion when they describe an ineffective monetary strategy, i.e., a drop in the Fed’s target rates that does not stimulate borrowing, as “pushing on a string.” At such times, low Fed-influenced rates cannot overcome creditors’ disinclination to lend and/or customers’ unwillingness or inability to borrow.

We would add some thoughts to this simple concept.  Prechter has emphasized credit expansion, but there is more to it than that. First, there is a difference between customers who are unwilling to borrow and those unable to borrow. Those unwilling to borrow are also likely unwilling to spend.  While those unable to borrow are likely to have few assets to sell to feed their desire to spend.   So… suppose the government bought all bonds, public and private, for (newly created) cash.  Those who would spend but who had no assets to sell would receive no new cash and would not spend more.  Those who had assets to sell will have received new cash in return for their bonds, but they didn’t want to spend in the first place.  Any one or more of those  individuals could have converted their close-to-zero yielding bond assets to cash and spent at any time, but chose not to.  Will one who is unwilling to borrow and spend suddenly become more inclined to spend and thus make prices rise, simply because the makeup of his portfolio was changed – against his will- from close-to-zero yielding bonds to absolutely zero yielding bonds?  The answer is unclear, particularly, if he expects prices to fall.  The FED might want to take a survey of these folks…

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