The View From 1776
Monday, July 05, 2010
Counter-productive Government Intervention
Another aspect of why Keynesian economics retards economic recovery.
By DAVID REILLY
Making money too cheap carries danger. First, it fueled the housing bubble. Now, counterintuitively, it may be crimping an economic revival. That wasn’t the plan.
By cutting rates to near zero, the Federal Reserve helped forestall economic collapse. Yet with the recovery flagging, some worry that super-loose monetary policy may actually be turning the Fed into an agent of deflation.
At issue is why banks aren’t lending, especially to small businesses that are the engine of growth. One answer is there isn’t demand for loans. Clearly, that is a factor. A lack of loan supply, though, also may be playing a role