The former Chairwoman of the Federal Deposit Insurance Corporation, Sheila Bair, has recently stated that “Low interest rates are hurting, not helping, the economy”. According to Ms. Bair, historically low interest rates have helped the housing market recover but are hindering business lending, which holds the key to the overall recovery. “Very low interest rates on your (the banks) balance sheet … is not good for business lending”, says Bair. She would like the Fed to start increasing rates in a gradual and methodical manner so that the market can adjust.
Even the WSJ’s conventional economics columnist, David Wessel, admits that “big companies continue to build an enormous cash hoard as if they are preparing for catastrophe”. He says that “Ben Bernanke sees the exit, he just doesn’t know how to get there”.
Current policies for fixing the economy are clearly not working and may be doing grave damage. There are lots of policy measures which might help, and certainly won’t hurt, such as broad-based tax reform, loosening regulation of small business, aggressively pursuing new trade agreements, visa reform, targeted job training, etc.. Concentrating on implementing such measures is what our national leaders should be doing!