The View From 1776
Friday, February 06, 2009
Why the Fed and Banks Should Raise Interest Rates
Counter-intuitively, raising interest rates in a credit crunch, while painful to over-extended businesses and consumers, will shorten a recession and put the economy on a sound footing quickly.
Read an historical analysis from the viewpoint of Austrian-school economics.
Note that, while the Treasury and the Fed have opened the credit spillway, sinking the economy even deeper under-water with excess money, their Keynesian measures aren’t working. Banks still aren’t lending. Unemployment is rising rapidly. The price of gold, anticipating inflation, has jumped 43% since March, 2007, when the Fed began opening the spigot.
Arguably, inflation is far more devastating, to far more people, than temporary unemployment and the demise of many over-extended businesses. Inflation steals the purchasing power of generations of labor embodied in people’s retirement savings. Retirees on fixed incomes were almost wiped out by the 1970s stagflation, and we are headed toward a repetition of that destructive era.