The article 'Transmission Unaccomplished' by John Authers discusses the complexities of monetary policy, likening it to an automobile to explain its components and the challenges faced by central bankers. It emphasizes that while the financial system is meant to transmit economic power, current efforts have not effectively revived stagnating economies, highlighting the limitations of quantitative easing. The piece argues that excessive government intervention has hindered recovery, and warns against increasing debt levels for US consumers.

1. Student Name:________________
1. Article Title, Author, Date and Source:
Transmission Unaccomplished, John Authers September 24
th
2010 Financial Times Page 12
2. Article Summary:
“Transmission Unaccomplished” written in the Lex section of
Friday’s Financial Times
offers an interesting and simplified perspective of the complex
and sophisticated purpose and
workings of monetary policy. At a time when the world is
reeling from the effects of
misunderstood monetary policy in the United States and other
nations around the globe, this
article clearly cuts to the heart of the matter, provides a simple,
easy to understand analogy
relating monetary policy to an automobile. The authors
describe the key moving parts of the
economy as they correlate to their counterparts in an

2. automobile. While he labor and
resources constitute the fuel of the economy, technology and
institutions correspond to the
engine, and commerce is depicted as wheels. The financial
system is the transmission,
responsible for moving the power and energy created by the fuel
and engine to the wheels.
This simple analogy helps frame the context for the reason why
central bankers – the
transmission mechanics – were facing increasing difficulty. In
particular, the 1.6 % drop in
the dollar’s value, the lack of real economic turn-around, and
the lagging increase in GDPs
around the world. The authors seem to think the US, despite an
increasing saving rate and
10% deleveraging, still has long ways to go on the road to
recovery, and the automobile
analogy suggests, is in need of significant repairs and
rebuilding before it is truly road worthy.
3. How is the article is related to the readings and class
discussions?
The concepts in the article mesh with the readings in chapters 3
– 5 as a current, real world

3. depiction of how monetary policy influences decisions in
economics. The article highlights the
need for central bankers to properly manage monetary policy in
order to maintain the
transmission of the vehicle, and keep the proper amount of
power moving from the motor to the
wheels. It questions the true value of quantitative easing, and
highlights the ramifications of
pursuing excessive QE as a policy. Just as was discussed in the
first five chapters of the text
book, monetary policy involves a delicate balance of adjusting
interest rates, setting currency
value, and establishing guidelines that enable prosperity and
growth. The article also identifies
too much intervention as a possible means for enhancing the
problems we face, rather than
ameliorating the problems.
4. What did I learn from this article?
This article certainly helped put monetary policy, something I
seem to be familiar with only
through studying politics and economics, into a very concise,
easy to understand framework that

4. enables a deeper understanding of greater associated issues. I
learned that the US liabilities are
Student Name:________________
roughly 120% of disposable incomes, double those of the 1960’s
through 1980’s – an era with
some economic growth, and substantial economic faltering,
namely price controls, economic
limiting, inflation, and high interest rates. I also
learned/confirmed my assumption that the end
of the recession in the US is out of sight due to excessive
government intervention.
5. New Terms and Concepts and Brief Explanations:
I came across with the terms “Quantitative Easing” and “Trade
Weighted Exchange Rate” that I was not
entirely familiar with. I found the following descriptions for
these concepts.
Quantitative Easing: A government monetary policy used by
central banks to increase the money supply
by buying government securities or other securities from the
market. Net effect: QE increases the money
supply by flooding financial institutions with capital in an
effort to promote increased lending and

5. liquidity. Used when interest rates have been lowered to near
0% and failed to produce results. Although
QE increases liquidity and availability of capital, if demand
doesn’t match supply, higher prices and
inflation are likely. (Investopedia.com)
Trade-weighted: A representation of the foreign currency price
of the US dollar or the export value of
the US dollar. Increase in the index means the value of the
dollar increases. Americans can therefore
more easily afford imports, however, US exports can be more
expensive. (investopedia.com)
SOLUTION 13,498
At zero nothing moves any more
Sources: Thomson Reuters Datastream; Haver Analytics
Effective US Federal Funds rate (%)
Recession
1958 70 80 90 2000 10
0
5
10

6. 15
20
1952 60 70 80 90 2000 10
0
2
4
6
8
10
12
14
20
40
60
80
100
120
140

7. Personal saving
(as % of personal
disposable income)
Household debt
(as % of personal
disposable income)
Transmission unaccomplished
The financial system is not the fuel
that drives an economy. That role is
played by labour and resources. It is
not the motor that creates
prosperity – technology and
institutions do that. Finance is more
like the transmission that moves the
energy to the wheels of commerce –
hopefully at the right speed. But the
transmission cannot help when the
wheels are stuck in the mud. That
analogy may help explain the
difficulties faced by central bankers,
the stewards of monetary
transmission.
Financial markets do respond to
prodding. A slight change in the
Federal Reserve’s wording on
Tuesday pushed the dollar down 1.6
per cent on a trade-weighted basis.
A new quantitative easing
programme could well push asset
prices higher. But huge monetary
efforts, near-zero rates and
whatever-is-needed support for the
financial system have not put the

8. real economy back on the growth
road. Gross domestic product in
most developed economies is still
below the 2007 peak, a much worse
record for monetary policy than in
past recessions.
Two years of very low policy rates
and asset purchases in developed
countries (two decades in Japan)
may be generating monetary energy,
but it is being lost in transmission.
US consumers appear stuck in the
mire for years to come. According
to the Bureau of Economic Affairs,
their liabilities are still about 120
per cent of disposable incomes,
down from 130 per cent before the
credit crunch hit. They have much
deleveraging to go before this ratio
falls to the 66 per cent typical from
the 1960s to the 1980s. Their saving
rate has already jumped since the
crisis, from barely 1 per cent to
6 per cent today. With little demand
for loans, the banking system is
using lower funding costs to
increase profits, and replenish
capital, rather than to lend more.
Like flooring the accelerator pedal
in a stuck vehicle, more QE may
just make the wheels spin faster in
the global muck of debt and
imbalances. There is no tow-truck
in sight.