I haven’t really thought about it. If the Fed under Yellen keeps spending the way they do why would banks stop lending is what I’d ask myself.
A liquidity crisis is caused when the demand for money is greater than the supply and people/banks hoard money and don’t spend/lend it. That’s what causes velocity to contract and growth to slow. The solution is more liquidity until there is excess liquidity and people/banks are willing to take risks with excess capital. The banks keeping the oney at 0.25% when they can lend and make a massive interest spread makes all the sense in the world. they just aren’t doing it. And businesses aren’t taking out loans because of the uncertain environment. “Operating without borrowing” makes the problem exponentially worse because there is no capital flow and velocity continues to collapse and the economy slows more.
Too many people think “QE” is bad without understanding how the monetary system works. “Printing money” is not, in and of itself, inflationary. It depends on demand and the last few years demand has been very high.
I can see just from your post that I have a lot to learn.
Why are banks not loaning to businesses?
The big banks are taking risks with their excess capital but only short term risks (i.e. carry trade). The solution to the current economic crisis is not "spend/lend" but simply "lend" and long term lending is basically dead. There is no way that long term lending will revive until the Fed stops printing money and handing it out to politicians and banks.
"Printing money" is not, in and of itself, inflationary.
No, but nor does it lead to any confidence in the long term value of the currency, hence it deters long term investments.