"So Fed open market
purchases are not aimed to force money through the system and out into the
hands of the public. They are designed to support and accommodate the higher
demand for reserves that the Fed itself has influenced by announcing a new target
Fed Funds rate. The Fed influences lending and expands bank balance sheets by
targeting prices, not quantity. And of course, none of this works any longer
once the Fed Funds rate has fallen close to the zero bound, and the Fed cannot
set the rate any lower.
Also, Krugman is still attempting in this new piece to defend the loanable funds model of credit markets. He often seems to suggests that when banks want to increase their loans, they satisfy their increased demand for funds by attracting more deposits from the public, presumably by offering better rates for CDs and term deposits, better services etc. But while that might make sense from the standpoint of some individual banks, it makes little sense from the standpoint of the banking system as whole, and cannot explain the function of bank credit markets in response to an increased demand for consumer loans."
Also, Krugman is still attempting in this new piece to defend the loanable funds model of credit markets. He often seems to suggests that when banks want to increase their loans, they satisfy their increased demand for funds by attracting more deposits from the public, presumably by offering better rates for CDs and term deposits, better services etc. But while that might make sense from the standpoint of some individual banks, it makes little sense from the standpoint of the banking system as whole, and cannot explain the function of bank credit markets in response to an increased demand for consumer loans."
