The great economist and bon vivant, Joseph Schumpeter, described the failure of low interest rates to stimulate the animal spirits of businessmen as “PUSHING ON A STRING.” In paraphrasing this concept, high interest rates can stop an entrepreneur from borrowing but ultra-low rates cannot stimulate investment if there is no expected return higher than the cost of capital. Some pundits continue to insist that banks aren’t lending while many of the banks insist that there is no business or consumer demand. It is driving the Bernanke FED crazy that with interest rates at zero, capital investment is just not reaching levels high enough to add jobs.
Posts Tagged ‘Pushing on a String’
Notes From Underground: The FED has created a ball of confusion
August 11, 2010The FED set the markets into a state of confusion. Just after the release of the FOMC statement, the markets reacted. The DOLLAR sold off and the equity markets are bouncing and trying to get to “GRACELAND.” Upon further review the markets have realized that more than offering up easy money as the solution, the fact that the FED has made a 180 degree turn in four short months has the markets very nervous. Markets hate uncertainty and the FED‘s policy of maintaining the huge liquidity instead of removing the monetary stimulus is making them nervous.