by Mitch Kokai
Senior Political Analyst, John Locke Foundation
Contrary to myth, the Fed’s actions since early 2009 have damaged the economy. This wasn’t intentional, obviously. Doctors who harmed their patients with their toxic brews and incessant bleeding 150 years ago were also motivated by a desire to do good.
Eminent economists David Malpass (a FORBES columnist) and John Taylor, among others, have pointed out how the Fed’s zero-interest-rate policy has badly skewed our credit markets, thereby blocking, not stimulating, economic growth. The winners of this policy: large companies, which get globs of cheap credit; so-called government-sponsored enterprises, i.e., Fannie Mae and Freddie Mac , which have benefited from the Fed’s purchasing boatloads of mortgage-backed securities (these two entities are once again coining money); the federal government, which runs up deficits at virtually no cost (deficits without tears); commercial banks, which get a nice piece of change by depositing Fed-created excess reserves at the central bank and earning interest on those deposits; and bond underwriters and traders. But smaller businesses have suffered from inadequate credit, and the uncertainty of credit availability has damaged job creation, since smaller entities are the big job producers.