Wednesday, December 1, 2010

Solving the Wrong Problem

Paul Krugman writes:

When short-term interest rates are up against the zero lower bound, whatever power the Fed has to influence the economy comes largely from its ability to affect expectations. This is true even for Bernanke-style quantitative easing: you can’t really push down longer-term yields unless the market believes that you’re going to keep buying until the rates are where you want them.

So, the Fed wants to push interest rates down more I guess.

But the problem is not that interest rates are too high. The problem is the excessive accumulation of debt.

When you put finance people in charge of policy, they cannot see debt as a problem.

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