This risk increases the longer unconventional monetary policy measures continue to be applied. And third, monetary policy can only buy time – no matter how loose or unconventional it becomes. Monetary policy is not a tool meant to alter the long-term viability of economies, and it would be dangerous to believe otherwise. I will come back to this point in a few minutes.
This started out as a problem of excess liquidity and quickly degenerated into a credit crisis, originating from financial institutions having exposure to the sub-prime market and thereby incurring huge losses as delinquencies and foreclosures increased following US Federal Reserve’s tighter monetary policy.