Think the Federal Reserve tends to do more harm than good? You’ll likely agree with the following passage from the latest Bloomberg Businessweek:

To the hawks, the Fed’s drive to pump up banks’ lendable reserves has created a $1.5 trillion bomb with a short fuse. In ordinary times banks try to avoid carrying reserves—i.e., cash in their vaults plus their checking accounts at the Fed—above the required minimum. It’s more profitable to lend the money to customers. Loan demand is soft now, but hawks worry that when it recovers banks will massively increase lending, resulting in a burst of money creation that ignites inflation. Hence Stockman’s survivalist warning. Allan Meltzer, a Carnegie Mellon University economist who has studied the Fed since the 1950s, charges Bernanke with engineering “the lowest interest rates since Alexander Hamilton was a boy and excess reserves coming out the kazoo.” (Yes, he said kazoo.)

It’s not just hyperinflation that hawks such as Meltzer fear. Just as dangerous, they say, is “malinvestment”: money going to unproductive uses, as happened in the disastrous residential construction boom. Ronald McKinnon, a Stanford University economist, says low rates can keep alive “zombie” banks and their borrowers when it would be better for the economy to flush bad debt out of the system. The Fed is also shielding Congress from the consequences of the federal government’s fiscal irresponsibility, McKinnon says. Ordinarily the bond market vigilantes, alarmed by the prospect of uncontrolled deficits, would have pushed up America’s borrowing costs, says McKinnon, but they’ve been neutralized by the Fed’s commitment to keep long-term rates low at all costs. Foreign central banks, including China’s, have kept the dollar from collapsing by soaking up dollars that go abroad for higher yields, he says. In a forthcoming paper, McKinnon says zero interest rates are more “mutilating” than “stimulating.”