Economist Talks About How the Term Paper

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This is one of the fears that many people share, and that the Economist article deftly points out.

The Fed's argument about keeping interest rates low as a mechanism for job creation has also been rather unproductive. The Fed argues that by offering low interest rates on borrowed money that businesses will take loans to grow. But in this recession, there is no reason to grow when there is decreased demand for goods and services. One reason for this decreased demand is that the unemployment rate is so high, and people are unwilling to buy things they don't need. Also, as banks shrink available credit, people have less money to spend on credit cards and other instruments of credit. The Fed has also tried to keep interest rates low while fighting what it calls a major threat to economy and jobs stability, which is deflation. Deflation is the lessening of prices as the money supply contracts. By participating in QE1 and QE2, the Fed argues it has increased the money supply to levels that help to eliminate deflation and encourage pay rates to stay the same. The Economist article explores how from both sides, the Fed is receiving criticisms because it is not affecting positive change within the economy as far as its mandates are concerned.

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Certainly some of the blame could be put on the banks for not lending, but the final result of the Fed's actions could very well be worse than the 2008 recession in terms of the potential for inflation and the side effects of more quantitative easing. It is unclear whether or not the Fed's actions represent a concerted policy effort to help boost the economy or a haphazard collection of specific reactions to economic turmoil. The potential for catastrophic results in the future is very real, and there remains much criticism of the Fed's actions from all perspectives......

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