Stiglitz on Monetary Policy

Joe doubts the power of monetary policy:

We should be clear, however, that monetary policy and these last-minute rescues can only prevent a meltdown of the economy; it can't resuscitate it. As Keynes pointed out, it's like pushing on a string - and even more so in this era of globalisation. With housing prices falling, new liquidity won't make homeowners borrow more or banks lend more. The money will look for safer and higher returns elsewhere, like China, which is now worried about US irresponsibility showing up in asset-bubbles in its own economy.

I don't believe it. At the very least, even in a world of perfect capital mobility, monetary policy can use the exchange-rate channel: More expansionary policy causes the currency to depreciate, which stimulates net exports. That channel is part of the story right now.