The Fed wants to increase liquidity. But given the weakening in economic activity, this is not easily done. Obviously, if the Fed were to decide to set the interest rate target to nil, then it could have the freedom to pump as much money as it likes. But by doing that it runs the risk of seriously undermining the bottom line of the economy.
The inability of the Fed to do what it wants to do is bad news for bubbles. But it is good new for economic activities that are truly wealth creating. In this case, a failure by the Fed is the path to economic recovery. Now the bad news: economic recovery permits the Fed to once again succeed in expanding the money supply, which results in new bubbles and the cycle starts all over again. FULL ARTICLE