NEW YORK — Imagine that you enter the shower, turn on the water and nothing comes out. You call a plumber who tells you there are holes in the pipes and that repairs will cost you $1,000. You tell him, instead, to turn up the water pressure.
Well, this is the logic behind the U.S. Federal Reserve's second round of "quantitative easing" (QE2) — its strategy to keep flooding the money pipes until credit starts flowing freely again from banks to businesses.
You wouldn't expect this to work in your shower, and there is little reason to expect it to work in the commercial lending market. The credit-transmission mechanism in the United States — and elsewhere — has been seriously damaged since 2007.