I am here to bring you the word that Milton Friedman would bring if he were still with us.
We have seen something like this--but worse--twice before: the Great Depression, and Japan's lost decades. A collapse in trust in the solvency of financial institutions induces the hoarding cash as part of the safe-asset tranche of portfolios. The economy's cash disappears from the transactions money stock--and so, for standard monetarist reasons, spending declines and unemployment rises. It's not a conventional monetarist recession in which the money supply shrinks, for the money is still there--just not available for transactions.
In such a situation, standard open-market purchases don't help the economy: the increased money stock goes straight into the hoarded safe-asset tranche. What you need to do is one of two things: fiscal policy--have the government create additional Treasuries for the safe-asset tranche and thus trigger the release of the economy's cash back into the transactions balances; monetary policy via quantitative easing. Expansionary monetary policy even at the zero lower bound via quantitative easing is what Milton Friedman recommended for the Great Depression and for Japan.
That's what Friedman would be recommending were he with us today--keep doing rounds of quantitative easing until we get the economy's transactions cash balances and the flow of spending back to normal levels.
If you want to oppose quantitative easing you need to denounce Milton Friedman as a dangerous lefty.
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