I have been trying to understand this article but must confess with very little success. However, I am hoping that the poster that provided the link to it may be able to help.
Government is incurring a large deficit, I am just assuming because I don't follow America's fiscal fortunes, which has to be financed with treasuries issued to the banks causing their reserves (high powdered money) to fall.
This poses a constrain upon monetary policy, that is, a constrain on the Fed's ability to sell its own treasuries, in an effort to suck money out of the system, raise interest rates and curb inflation.
But his is not the only constraint, because for the price of riskier assets not to collapse and bring a recession the liquidity in the system cannot further fall.
Therefore, the Fed cannot tighten its monetary policy. Is it this what he is saying?
