Regarding the ineffectiveness of stimulating the economy through monetary policy
Whether it is through lowering interest rates or increasing money supply to enhance market liquidity, the market does not respond and…
- Whether it is through lowering interest rates or increasing money supply to enhance market liquidity, the market does not respond and completely ignores it.
- This phenomenon is almost prevalent during periods of economic downturn in any economy, where government intervention through monetary policy proves entirely ineffective.
- Injecting liquidity into the market through monetary policy, regardless of the method used, fundamentally relies on credit. The problem lies in the lack of market confidence, as there are no reasons for individuals or entities to engage in credit transactions. Therefore, liquidity cannot be effectively injected into the market.
- This is the fundamental principle behind the failure of attempting to stimulate the economy by injecting liquidity through monetary policy. The ultimate issue to address is the lack of confidence, which can only be established through substantial efforts, meaning that economic activation can only occur when productive forces truly flourish.