Data visualization: corporate colours

I've been having fun with the visually-striking infograph Profitable Colours. Go here. It classifies company logos by colour, then ranks them according to worth, stock performance, and sorts them into industries.

Finance companies tend to be blue while consumer goods logos tend to be red. I wonder why.

Do credit-induced asset price bubbles show up in GDP?

Having read Larry White's book on free banking (pdf) and a number of George Selgin's papers I consider myself to be an advocate of free banking. That being said, I can't help but wonder about a few of George's recent points in his post on Intermediate Spending Booms, the most recent in a series of posts that trains a critical eye on market monetarists. Here is George:

But in seeking to free monetary theory and policy from the Keynesian overemphasis on interest rates, the Market Monetarists tend to downplay the extent to which central banks can cause or aggravate unsustainable asset price movements by means of policies that drive interest rates away from their "natural" values. Such distortions can be significant even when they don’t involve exceptionally rapid growth in nominal income, because measures of nominal income, including nominal GDP, do not measure financial activity or activity at early stages of production.

George is saying that nominal GDP might not properly capture the effects of a central bank setting its rates below the natural rate because it doesn't measure a few key variables, namely financial activity and early-stage investment projects. This sounds somewhat like a rechristening of the classic Austrian complaint against traditional measures of inflation. Here, for instance, is an article by Bob Murphy talking about how relatively tepid changes in CPI might mask credit-induced asset bubbles.

As I pointed out in my comment on George's blog, GDP calculations include investment, presumably much of which is in the early stages of production. GDP also includes inventories. Bill Woolsey describes this better than I can.

As for changes in financial activity due to excess credit, I think GDP should capture it pretty quickly. The next little bit is just a paraphrasing of Fritz Machlup's The Stock Market, Credit, and Capital (pdf). Machlup wrote it to counter claims that the stock market was capable of "tying up capital". It's a great read.

Fritz Machlup

Say artificially low interest rates convince a speculator to borrow from a bank in order to fund the purchase of a stock. When the transaction is completed the speculator owns the stock. On the opposite side of the transaction, the seller of the stock has been freed of her position and owns cash. She in turn can do two  things with this cash. First, she might buy goods. This will immediately show up in GDP. Alternatively, she can buy another stock, in which case a third person now owns the cash. This third person can in turn either buy goods, which registers in GDP, or purchase new stock from a fourth person. This fourth person can.... you get the point. The process proceeds fairly quickly until someone in the chain purchases a good, thereby allowing GDP to capture the effect of excess credit.*

Another factor limiting the ability of long chains of stock transaction to tie up capital is that the longer the chain continues, the more likely stock prices are to be bid up. At higher prices, firms are more willing to finance themselves by issuing new shares since their cost of capital has fallen. This is because they can raise more today than the day before while issuing the same amount of shares. When firms issue new shares they drain the purchasing power originally created by excess credit creation out of the market and invest it in new capital. This allows GDP to ultimately capture the effect.

So a decline in market rates below the natural rate will result in more credit, and this credit could very well be used to purchase stocks, and this will put upward pressure on prices. But just as quickly as credit is used to buy stocks, purchasing power is released from the stock market as the sellers of stocks use the proceeds to buy real goods. GDP measures will capture the effect. I think this process happens fairly quickly given the agileness of financial markets. Maybe George thinks these chains can persist for some time.

One interesting side note. Say that the purchasing power created by excess lending exits the stock market when someone in the chain purchases used goods, say an old couch. Second hand goods transactions are not included in GDP calculations. So in this case, the effects of excess credit might not show up in GDP. It's for this reason that Nick Rowe  prefers the value of total transactions ( P x T) to nominal GDP (P x Y) as his choice indicator. Incidentally, George too invokes the idea that measures of transactions might be better indicators of monetary conditions than income measures:

When interest rates are below their natural levels, spending is re-directed toward those earlier stages of production, causing total nominal spending (Fisher’s P x T) to expand more than measured nominal income (P x y) 

It would seem then that market monetarists like Nick Rowe and Selgin do have some things in common.

*There is a third thing that can be done with the cash. It can be held. But if people do this, then the issuing bank never issued excess credit in the first place. Sufficient demand already existed in the economy for bank liquidity and this is expressed by the fact that people willingly decide to hold those newly created deposits.

Almost everyone is (or has been) a short-seller

People often have difficulties wrapping their head around the idea of selling a stock short. It seems odd. Once people understand how it works, they also tend to perceive short-selling as immoral. They also assume that only a few malcontents engage in that sort of transaction.

But everyone either has been, is, or will be a short-seller.

When you short a stock, you're basically borrowing a stock and immediately selling it in the market. When the lender of the stock demands the stock back, as the short seller you've got to buy the stock back in the open market and deliver it to the lender.

Now consider someone who borrows from the bank. You borrow a deposit and immediately sell it in the market. When the bank demands the deposit back, as the borrower you have to buy the deposit back in the open market and deliver it to the bank.

These two transactions are the same transaction. Borrow an asset, sell it, and when the lender requires delivery, buy it back and deliver it to the lender. Anyone who borrows from a bank is a short-seller.

Part of the ethical argument against short selling has been that short sellers are hoping for lower stock prices. The reason short sellers want a stock's price to fall is that it allows them to buy the stock back at a cheaper price and deliver it to the lender of the stock, thereby earning a good profit. Wishing for a lower stock price is presumably the unethical part. It's a form of schadenfreude.

But anyone who borrows from a bank wishes for the very much the same thing! When the bank calls in your loan, you really hope that those deposits have fallen in value. That way you earn a profit. You earn a profit because you don't have to sell as many real resources to repurchase the deposits as you initially bought with the first sale of deposits. There's also schadenfreude involved here. Wouldn't you prefer if the bank had gone belly-up? Or that your nation's central bank had gone hyper-inflationary? Either way, buying back the deposits will be a cinch.

So if short selling is only done by vultures, so is borrowing. If the former should be banned, so should the latter.

Data visualization: connectivity in CDO markets

click here for full version.

This is an illustration of the interconnectivity of CDO markets from Deus Ex Macchiatto.

All of the CDOs in a strongly connected subgraph depend on all of the others. You can’t value any one in isolation: you have to consider all of them together. So… how big do the strongly connected subgraphs get?

Financial fragility or robust self organization?

Zero percent interest rates forever

Noah Smith asks what would happen if the Fed kept interest rates at zero forever. Specifically:

Suppose that the Fed targets only one interest rate, a short-term nominal interest rate, and that its only tool is Open Market Operations (it cannot provide any "forward guidance" or communicate with the public at all). Suppose that at date T, the Fed decides to keep the interest rate at zero in perpetuity, and remains unwaveringly committed to this decision for all time > T.

He asks this because Nayarana Kocherlakota, head of the Minneapolis Fed, once said, somewhat counter-intuitively, that over the long run, a low fed funds rate must lead to consistent—but low—levels of deflation. This seems odd at first blush because we've been conditioned to assume that low interest rates lead to inflation, not deflation.

I'm going to try and give an answer that financial types will understand. The spoiler is... over the short term we'd have inflation, but Kocherlakota is probably right that after some time passes, an artificially low federal funds rate will lead to a steady deflation.

Imagine that you're an investor who can hold either deposits at the central bank or units of some durable good. In order for these two assets to be willingly held by both you and your fellow investors, each must provide attractive returns. If one of these assets provides excess returns, arbitrage dictates that you'll all try to switch to that asset until those excess returns cease to exist.

A bank deposit's return can be decomposed into an interest component, expected capital appreciation (or depreciation), and a liquidity yield. Liquidity is a special benefit that a deposit provides since it more marketable than most assets. The durable good, assume it costs nothing to store, provides a return in the form of capital appreciation (or depreciation), but no interest and a liquidity yield that is so minimal that it may as well be nothing.

At the outset, the returns on the two assets are already equal. But the central bank suddenly lowers the interest component of the return it pays on deposits to nothing, catching the investment community by surprise. As an investor you're distraught. The deposit you held just prior to the announcement yielded, say, 5%, and now it yields just 0%. You'd like to sell it for the durable good, since the return on the durable good (which is composed, say, of expectations of 10% price appreciation) is superior. But investors holding the durable good won't sell to you, simply because the return they require on the 0% deposit must be similar to the return on the durable good they already own. And it isn't.

To convince them to accept your 0% deposit for their good, you must increase its return. You can do this by increasing the expected capital appreciation provided by the deposit. By marking down the current price of the deposit relative to its expected future price, you provide your trading partner with the necessary potential capital appreciation. Whoever buys the deposit can be sure that even though it yields an interest rate of 0%, it will provide a commensurate capital return of 5% or so.

In knocking down the market price of the deposit, you've caused immediate inflation. The purchasing power of money (the deposit) has fallen such that you can't buy as many durable goods with it as you could before. At the same time, you've cleared the stage for future expectations of deflation. That's because in low-balling the offer price for your deposit to attract buyers, you've increased the expected capital appreciation provided by the deposit. You've caused inflation in order to promise deflation.

Maybe the entire process happens immediately. But economists like to divide things into the short and long run. In the short run, all you'll see is inflation as the market gropes for a new and lower clearing price for deposits. At first, perhaps, most investors think that the central bank will only keep rates at 0% for a year and then set them back at their normal rate. But when the next year comes and the bank surprises the market by keeping those rates at zero, once again you'll have to rapidly lower the price of your deposit so as to provide potential deposit buyers with enough capital appreciation to compensate for the disappointing yield on deposits.

This yearly pattern of lowering the price you offer on your deposits continues until the market is no longer surprised by the central bank's intentions to keep rates at 0% for eternity. Only then will the inflation end. Deposits, which by now have been bid down to some terminally low level, will slowly and steadily appreciate. This is the "consistent deflation" that Kocherlakota describes.

There is one interesting caveat here. I started out the example by pointing out that one component of a deposit's return is its liquidity yield. Because the market puts a premium on liquid assets —a liquidity premium, so to say —deposits and other liquid assets can provide lower interest rates than not-so-liquid assets.

But if deposits (or any other money-like object) are constantly plunging in value, they cease to be attractive as medium of exchange. In general, people prefer to transact with relatively stable monies. Thus each time you mark down the deposit's value, its liquidity premium deteriorates as the market searches out for other assets that can serve as better mediums of exchange. With the decline in its liquidity yield, the overall return from holding deposits declines even further. This inferior return can only be compensated by a promise of more capital appreciation ie. yet another fall in today's market price relative to expected future prices. This process feeds on itself as the falling value of a liquid assets renders it less liquid which causes it to fall further in price. At some point, the deposit risks being demonetized.

What comes first? Will the deposits reach a terminally low price from which they commense their rise? Or will they become demonetised and valueless? What about the assets that back deposits... might these provide some lower limit for the price of a deposit, even if it pays 0% loses its entire liquidity premium? Fun questions, but I'll leave those for someone else.


Related blog posts:
Karl Smith here and here, and Andy Harless here.

Great Depression in charts

Gauti Eggertson's paper (pdf) claims that the US recovery from the Great Depression was driven by a shift in expectations caused by FDR's new policies:

"On the monetary policy side, Roosevelt abolished the gold standard and—even more importantly—announced the explicit objective of inflating the price level to pre-Depression levels. On the fiscal policy side, Roosevelt expanded real and deficit spending, which made his policy objective credible."

I thought the chart below was effective:

Economists often describe the regime uncertainty created by FDR's policies. Does anyone know of any charts illustrating regime uncertainty between 1930 and 1934?

The world of monetary affairs in the 1920s and 30s: a complex affair

Bob Murphy asked whether Lionel Robbins was right in saying that central bank policy in the late 1920s and early 1930s was a complete reversal of traditional central bank doctrine.

A blogger named Lord Keynes, (perhaps the ghost of Keynes? ), takes exception to this idea, noting somewhat dramatically that Murphy is "dead wrong" and "utterly absurd".

These sorts of us vs. them dramatics would be best left to the likes of professional sports casters (economic history is not a competition), but I'm going to look past the silly theatrics so as to delve into what is a very interesting issue.

The nub of the debate, in my view at least, boils down to the definition of traditional central banking doctrine. My conclusion, which I'll get around to explaining, is that compared to the 1800s, central bank policy between 1929-1932 was probably a complete reversal. But compared to Fed policy through most of the 1920s, the Fed's policy during the Depression was similar. One major categorical difference between 1923 and 1932 was the broad powers provided by the Glass Steagall Act. More on that later.

First, what is it that Lionel Robbins said? Here is a snippet:

Now in the pre-war business depression a very clear policy had been developed to deal with this situation. The maxim adopted by central banks for dealing with financial crises was to discount freely on good security, but to keep the rate of discount high. (Robbins, The Great Depression (pdf), Pg 72)

What Robbins is enunciating here is basically the classical advice of Walter Bagehot. In a crisis, central bankers should accept all collateral in return for loans, but should only do so at a penalty rate. (The latter is what Robbins is referring to when he says that a central bank must "keep the rate of discount high"). By penalty rate, Bagehot meant that central bank should only lend at some interest rate above the current market rate. In modern parlance, this is like saying that the central bank must force borrowers to take a haircut on their collateral.

A Bagehotian central bank is an extremely passive one. As a pure lender, it must wait for banks to come to it, as opposed to a buying central bank which can initiate transactions on its own behalf. Furthermore, a Bagehotian central bank can't influence banks to borrow at its discount window by lowering its own rate below the market's, since it must lend at a penalty rate. It can drop its rates to some low level, but only after the market has done so.

Walter Bagehot

The sort of central banking that Robbins would contrast to the traditional Bagehot view is the post-WWI central banking practice that first arose in the US in the early 1920s. How was it different? Here, for instance, Allan Meltzer describes a New York Fed governor Benjamin Strong's position in 1921 on lending at a penalty rate:

He [Strong] believed the correct policy was to lend freely at a penalty rate, and he again cited Bagehot's rule. In July he continued to favor a penalty rate in principle, but recognized that the principle had to give way. He told [Montagu] Norman that money conditions "hardly justified.... making a further reduction." There were other considerations, however that made classical methods "not always the wisest," and he added, there were "political considerations brought about by the change of administration". History of the Federal Reserve, Vol 1, pg 125-126

By the early 1920s, due to a combination of factors, some of them political, others technical, the Fed had effectively stopped discounting at a penalty rate.

At the same time the Fed had begun to use open market operations in monetary policy, not just discounts. Daniel Kuehn touches on this here. Open market operations were not entirely unknown to Bagehotian central banks. But they were a sideshow to discount window lending. The thinking behind the Fed's unveiling of open market operations can be found in the Fed's 1923 Annual Report, in which the Riefler-Burgess doctrine (a term coined by Meltzer) was first described.

The idea behind Riefler-Burgess was that if the Fed embarked on a campaign of open market operations, member banks would have more reserves and could borrow less at the discount window. This would lower their borrowing costs and allow them to expand their lending, thereby buoying the economy. Rather than constantly varying discount rates, often a politically unpopular option, the Fed could simply engage in an activist open market sales/purchases program so as drive banks to, or pull banks away from the discount window, and thereby slow or spur on the economy. As Meltzer points out, discount rates now played second fiddle to open market operations:

The Riefler-Burgess doctrine is ambivalent about the role of the discount rate. At most, it has a supporting role; at worst, it has little supplementary effect. Strong, who used the doctrine as a guide to policy, was ambivalent about the independent effect of discount reate changes. ibid. Pg 264

The result of all this was that by 1923, the Federal Reserve was no longer Bagehotian. Rather than a passive wallflower that stepped in only rarely, it actively participated at all points in an economy's trajectory.

The upshot is that when Lionel Robbins describes the Federal Reserve open market purchases of $410m from October 1929 to December 1930 as breaking with tradition (pg. 73), he is right... since the tradition he is referring to is Bagehot's and not the more recent 1920s Riefler-Burgess tradition. At the same time, Lord Keynes isn't wrong to point out that Fed policy in the Great Depression was similar to Fed policy during the 1920s, insofar as they both relied heavily on open market operations.

 As Lord Keynes points out in his post, there is certainly a quantitative difference between Fed policy in 1923 and 1932. See the chart below of Fed government bond holdings and bankers' acceptances, the former of which shows a terrific spike in 1932. In this post, I called the 1932 event QE0. The Fed was permitted to buy bankers' acceptances in the open market, but usually just set a fixed rate and let sellers come to it.

There is an important qualitative difference between 1923 and 1932. The difference is this. Before 1932, all Federal Reserve notes had to be backed 40% by gold and 60% by “eligible paper”. The latter was made up primarily of commercial paper. The passage of the Glass Steagall Act in February 1932 allowed government securities to be eligible, and therefore dramatically increased the ability of the Fed to engage in QE with government debt. Prior to then, the government could only engage in QE with government debt to the extent that it already had excess gold and eligible paper. It was constrained. The effects of this constraint, and its removal, is best seen in the chart by the orange line, which shows the Fed's government bond-to-gold ratio. Having never risen above 20%, the passage of Glass Steagall allowed the ratio to rise to  60% in 1934.

In a nutshell, the Fed could never have done what it did in 1932 in 1923.

Canada in 3 graphs

Bank of Canada researchers recently published an interesting paper tilted the Evolution of Canada's Global Export Market Share.

One's gut reaction is to assume that with the commodities boom of the last decade, Canada's export share would have dramatically risen. We are, after all, hewers of wood and drawers of water, and the stuff we sell is generally more expensive.

Not so. I've cribbed a few charts and tables from the paper:

As the table shows, Canada's share of global exports has steadily declined since 1990 from 4.1% to 2.8%, despite oil prices being some 8x higher than before..

Why is this? The next table illustrates growth in various Canadian and world export markets:

While Canada's energy commodity exports have ballooned, look what has happened to machinery, automotive, and consumer exports since 2001. Splat. The commodity boom's influence on Canada's export share has been entirely counterbalanced by general weakness in Canadian manufacturing exports. 

There are many reasons for this. Canada's rising cost structure sure hasn't helped. The following chart shows  real effective exchange rates for manufacturing sectors across several countries: 

Since 2001, Canada has experienced some of the fastest growing costs when it comes to manufacturing. As a result, it's tough to justify building, let alone maintaining, export capacity in Canada's manufacturing regions.

If labour and other costs weren't sticky, we wouldn't be seeing this effect. Rather, the nominal rise in the Canadian dollar of the past ten years would be perfectly offset by local wage cuts, ensuring that real costs stayed constant. But we don't live in that world. That's why monetary policy has bite, and why devaluations are effective.

QE-zero

Bob Murphy asks if central bank actions taken during the early 1930s might be considered "unprecedented". In the comments I pointed out that during that era an early form of QE was tried. I'm not referring here to the famous 1933 Roosevelt purchases of gold that market monetarists often point to. For instance, see David Glasner here, David Beckworth here, and Scott Sumner here. Scott also has a very interesting paper on the 1933 gold purchasing program (pdf). No, I was referring to the 1932 treasury purchasing program.

I'm going to replicate the simple graphical analysis that market monetarists use in order to look at the 1932 episode. See this post by Lars Christensen, for example, who overlays important monetary events (QE1, QE2, LTRO) over the S&P500.

Here is the context. Prior to 1932, the Federal Reserve system was significantly limited in its ability to embark on large purchases of government securities. This was because of strict backing laws in the Federal Reserve Act that limited eligible backing assets to gold and assets accepted as collateral for Fed discount loans, primarily commercial paper. In effect, the Reserve banks could only purchase government debt to the extent that there was already excess gold and discounted assets on the Reserve bank balance sheets.

This limitation was removed with the passage of the Glass Steagall Act of February 1932, which allowed the Fed to include government debt as backing for notes and deposits. Almost immediately the Federal Reserve began a large scale asset purchasing program that increased the system's government debt portfolio from $743 million at the end of February 1932 to $1413m by May. The program, which I'll call QE0, continued at a slower rate after May, eventually hitting a peak just above $1800m by the end of July 1932. I overlay this on the Dow Jones Industrial Average.

The second chart extends the time frame to include 1933, putting QE0 on a scale with the Roosevelt devaluation.

Gavyn Davies, who has treaded this path before, notes that Milton Friedman and Anna Schwartz declared QE0 to be a success. In their Monetary History of the United States, the two drew attention to the conjunction of QE0 with a lull in bank failures and a "tapering off of the in the decline in the stock of money". They point to the bottoming of industrial production in August, five months after QE0 started, as a sign of its success. In his History of the Federal Reserve, Allan Meltzer also strikes a note of optimism when he discusses QE0, noting many of the same improvements in data that Friedman and Schwartz point to. Meltzer writes that "it seems likely that had purchases continued, the collapse of the monetary system during the winter of 1933 might have been avoided" and notes the rise in stock prices beginning in July as evidence.

But no market monetarist would agree with Friedman and Schwartz's analysis, since the new breed of monetarists take asset prices as the best indication of monetary stance. Scott Sumner points out here, for instance, that US equity markets had one of their fastest two day rallies in history as President Hoover met with Congressional leaders to begin work on Glass Steagall. All good, then, for the market monetarist stance, who like to see rising market prices coincide with easy monetary policy at the zero lower bound. Unfortunately for them that was the end of the rally. Markets continued falling to new lows even as QE0 accelerated. Scott Sumner indeed notes that "In many respects, the period from April to July 1932 was the worst three months of the entire Depression. Commodity prices continued to fall, and both stock prices and industrial production reached their Depression lows in July." Oddly enough, only with the end of the QE0 did stock prices begin to rise again, as the first chart shows, which runs contra to market monetarist thinking.

No wonder then that market monetarists prefer to look at the second chart. In 1933, the conjunction of increases in stock prices with various monetary events, including the departure of the dollar from gold convertibility and Roosevelt's gold purchase plan, is quite striking. This cozy relationship is no doubt the main reason that market monetarists prefer to point to 1933 rather than QE0 for evidence of monetary policy effectiveness at the zero lower bound.

QE0's seeming failure might seem to confirm Murray Rothbard's view that the huge increase in the money supply engendered by QE0 "endangered public confidence in the government's ability to maintain the dollar on the gold standard," leading to a loss of confidence on the part of foreigners who drew out gold, and on the part of Americans who converted deposits into notes. This turned an intended inflation into an unintended deflation. The aboves is also Peter Temin's view, who points out that the purchases reduced confidence, the resulting gold outflow nullifying QE0's potential for expansion.

My reading of Scott Sumner is that the 1932 purchasing program was rendered ineffective because of growing expectations that the dollar would float, leading to gold ouflows and an ensuing general panic in equity markets. In meting out blame for this panic, Sumner emphasizes the role of Congress in engendering uncertainty rather than the Fed's QE0 program. Once the dollar panic was alleviated and the hoarding instinct of foreign central banks and the private sector satiated, markets began their rise in the latter half of 1932.

Hsieh and Romer (pdf), on the other hand, use data on dollar forward rates to show that traders were not particularly worried about a dollar devaluation. If H&R are right, then one can only conclude that there was no dollar crisis, leaving market monetarists with no corresponding event to blame for counterbalancing the inflationary effects of QE0. So QE0, it would seem, was irrelevant -- a non-event. Scott talks about Hsieh and Romer's paper here. It all seems rather tortured to me, and leads me to (somewhat dismally) conclude that one can probably get a set of historical events to say almost anything one wants it to say. This is not a criticism of Scott, but one of economics in general.

All of this leads to current discussion of QE3. The New Keynesians point to the ineffectiveness of QE itself at the zero lower bound. For instance, see Simon Wren Lewis. This view is inherited from John Maynard Keynes who, it would seem, got it from his observations of the failure of QE0 in 1932. Here is Keynes in Chapter 15 of the General Theory:

There is the possibility, for the reasons discussed above, that, after the rate of interest has fallen to a certain level, liquidity-preference may become virtually absolute in the sense that almost everyone prefers cash to holding a debt which yields so low a rate of interest. In this event the monetary authority would have lost effective control over the rate of interest. But whilst this limiting case might become practically important in future, I know of no example of it hitherto. Indeed, owing to the unwillingness of most monetary authorities to deal boldly in debts of long term, there has not been much opportunity for a test. Moreover, if such a situation were to arise, it would mean that the public authority itself could borrow through the banking system on an unlimited scale at a nominal rate of interest.

The most striking examples of a complete breakdown of stability in the rate of interest, due to the liquidity function flattening out in one direction or the other, have occurred in very abnormal circumstances. In Russia and Central Europe after the war a currency crisis or flight from the currency was experienced, when no one could be induced to retain holdings either of money or of debts on any terms whatever, and even a high and rising rate of interest was unable to keep pace with the marginal efficiency of capital (especially of stocks of liquid goods) under the influence of the expectation of an ever greater fall in the value of money; whilst in the United States at certain dates in 1932 there was a crisis of the opposite kind — a financial crisis or crisis of liquidation, when scarcely anyone could be induced to part with holdings of money on any reasonable terms.

The market monetarists, of course, believe in the effectiveness of QE, although announcing a nominal target would greatly improve a purchase program's effectiveness.

This is what Nick Rowe means when he says that there are two types of economists (HT Bob Murphy). There are those who think monetary policy is useless at the zero lower bound, and those who don't. I wonder how much of the divergence between these two traditions has its origins in the data generated by the separate 1932 and 1933 monetary events. If you focused on the latter, you became a monetary policy believer, if you focused on the former you stopped believing.

Other posts on the efficacy of QE or lack thereof:

Stephen Williamson (here and here), Bruegel blog, Richard Serlin, Miles Kimball (here and here), Paul Krugman (here and here), James Hamilton, John Taylor, John Cochrane, Michael Woodford (pdf), and Simon Wren Lewis.