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Musing on Economics
Has the Fed Lost Its Way or Is It Just the New Normal
June 29, 2020
“The Federal Reserve announced that it would buy a “broad portfolio” of corporate bonds to help keep interest rates low. It may be well-intentioned, but the unintended consequences are horrifying. Firms die, and new ones are born, which is how economic growth is achieved. The Fed is keeping zombie companies alive. Companies that should be bankrupt. Capitalism can’t exist without failure. If poor performing firms don’t die, better ones can never take their place. When you don’t allow failure, you lose dynamism from your economy” (Jared Dillian).
The Fed is now in uncharted territory: Current actions make the last recession look like child’s play. “Uncharted” = does anyone really know what will happen next?
Figure 1: Fed’s Monetary Stimulus in Uncharted Territory
Has the Fed Lost Its Way or Is It Just the New Normal
June 29, 2020
“The Federal Reserve announced that it would buy a “broad portfolio” of corporate bonds to help keep interest rates low. It may be well-intentioned, but the unintended consequences are horrifying. Firms die, and new ones are born, which is how economic growth is achieved. The Fed is keeping zombie companies alive. Companies that should be bankrupt. Capitalism can’t exist without failure. If poor performing firms don’t die, better ones can never take their place. When you don’t allow failure, you lose dynamism from your economy” (Jared Dillian).
The Fed is now in uncharted territory: Current actions make the last recession look like child’s play. “Uncharted” = does anyone really know what will happen next?
Figure 1: Fed’s Monetary Stimulus in Uncharted Territory
Source: NY FED