January 21, 2009

Unconventional unconventionals

We had Donald Rumsfeld and his unknown unknowns. We now have Bank of England Governor Mervyn King's "unconventional unconventional [monetary] measures" (Dow Jones Newswire).

Unconventional monetary tools are used when the zero-bound has been reached and cutting interest rates is no longer possible, which is already the case for the Fed and just about for the BOE. They are also known as Quantitative Easing.

The "conventional unconventional" measures would be for the BOE to buy government securities.
The "unconventional unconventional" measures would be targeted purchases of any asset whose market has become dysfunctional. The BOE is considering paying above current prices for some assets, which it would presumably have to do since most of those "dysfunctional" assets are priced at, you guessed it, zero.

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