Frank Shostak, Von Mises Blog:
Recession, then, is not a weakening in economic activity as such, but rather is the liquidation of various non-productive activities that sprang up on the back of an increase in the money supply. . .
there is no such thing as stimulatory policies that can grow the economy. Neither the Fed nor the government can grow the economy. All that stimulatory policies can do is to redistribute real savings from wealth producers to nonproductive activities. And these policies encourage consumption that is not supported by useful production. . .
As a rule, monetary pumping "works" through the commercial bank expansion of credit. The increase in commercial bank reserves on account of the Fed's pumping gets amplified by means of credit expansion. At present, banks are finding it more attractive to sit on the massive pile of cash reserves rather than lend them out. So far in August, bank excess reserves stood at around $700 billion — against $1.9 billion in August last year.
The banks are still in the process of trying to fix their balance sheets. They are also having trouble finding viable borrowers — i.e., wealth generators. All of this raises the likelihood that the process of wealth formation is itself in trouble. . .
Over time, a situation can emerge where, as a result of persistent loose monetary and fiscal policies, there are not enough wealth generators left. Consequently, generated real savings are not large enough to support an increase in economic activity. In this situation, neither loose monetary policy nor loose fiscal policy can "work.