Thursday, July 12, 2012

Quote of the Day: Frank Shostak

A fall in interest rates cannot grow the economy. All that it can produce is a misallocation of real savings. As a rule, an artificial lowering of interest rates (which is accompanied by the central bank’s monetary pumping — increasing commercial banks’ reserves) boosts the demand for lending; and this, as a rule, causes banks to expand credit "out of thin air."

~ Frank Shostak, from Yet Another Operation Twist

Grouch: Will Operation Twist succeed on the third try? Or are our economic problems deeper and more systemic than anything the Fed could ever manipulate our way out of? Are artificially low interest rates and current fiscal policy actually retarding a normal recovery?

1 comment:

  1. I'd prefer to see the Fed set the growth rate of m1 at 2.5% and let the market set interest rates. i.e. the price of money.