By Dr Jeffrey Lewis
It's clear that Europe's debt problems can now be wrapped up into the term credit crunch. In light of operations by the Federal Reserve, the amount of money available for credit appears to be shrinking, while risk premiums demanded by banks are thickening.
It remains to be seen whether a drop in the monetary base from $2.7 trillion to just under $2.5 trillion will warrant a future round of quantitative easing. Assuming the Fed holds up with its promises to Europe, the central bank could easily inflate the US dollar by export, allowing for far more liquidity than might be politically possible in the United States.
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