Democrat/Socialist Party claims that TARP and “stimulus” spending revived the economy and induced banks to resume lending. Results don’t support those claims.
The main claim for the Fed’s QE2 (creation of yet more more fiat money) is that it will stimulate consumer spending, thereby finally getting the economic recovery into high gear.
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And there you have it, clear as a bell. Paul Krugman couldn’t have said it any better. According to Beckworth, the problem with our economy is that people aren’t spending enough.
This simple idea is very powerful; it permeates our financial press when they wring their hands and wonder if “the consumer” will buy enough Tinkertoys this holiday season “to pull the economy out of recession.” But of course, if spending were really the trick to having a growing economy, then the world would have eliminated poverty long ago. No, it’s production that is the real obstacle; consumption can take care of itself…
Now, maybe the Austrians are completely wrong, but if so they are at least consistent: They say that fiscal pump priming just makes things worse, because it redirects resources away from private-sector uses and into politically directed channels. Well, Fed inflation does the same thing, except that it also directly distorts the credit market as an added bonus.
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