As some financial revolutionaries (like Cody Willard/Market Watch-1/29/14) point out, the 0% Fed funds rate is more than questionable. While most people, like myself, may appear to benefit from low interest mortgages which this policy may nurture, it is one of the bandits that is holding our recovery hostage. Four years into a good recovery, we should be worrying about inflation. Instead, we are worrying about disinflation and squabbling over other disabling policies like a higher minimum wage to add the boost to wages that our lethargic economy has failed to provide. (Don’t we understand that an artificial boost to wages, like zero interest, is another wolf in sheep’s clothing? Those on the supply side quickly raise prices soaking up that dream income.)
When a bank can lend money (that it borrows at 0% from the Fed) to the U.S. Government, taking no risk, why would it lend to small businesses and risky start-ups? These, of course, are the entities that have fueled every recovery in our history because there are so many of them. The math-based economics taught at Harvard, and other major universities, that seems to drive Fed policy, may look first-rate on paper, but not on Main Street where the shoes walk the pavement. The special interest rates for the financial community and their investors only appear to benefit the wider economy. It does not get loans to those thousands of small entrepreneurs who really leverage capital by taking risk–hiring new employees, leasing new space, or ordering new goods and services. This is real-world economic recovery. If you think about it, the incentives laid out by Washington are all backwards. If banks could only borrow at 0% when they to lend to a start-up, or say, to a company hiring 10% more workers (where there is actual risk), the speed of the recovery might astound us. It might also astound Wall Street who no longer could borrow at 0%, unless they hired a lot of people.
Does this sound radical? I hope so. The Federal Reserve Bank was a highly disputed agency during the early days of our Republic. Many believed that a central bank would work against the interests of the public while it provided financial support to large banking and business interests. Is it not our money (our tax dollars) they are playing with? We are seeing the discouraging effects of that central bank policy at work in our economy today. For those able to borrow at 0%, the economy is buzzing. For the rest of us, over burdened with new agency directives and legislation designed to protect (control) us, the economy is still a struggle. We may have to await the new ideas that seem to sprout every four years in November.