Governments are often criticized for throwing money at problems, but a slumping economy is the sort of problem that cries out for hurled cash. Uncle Sam, who throws around more money than anyone, has come down with a sore arm. And so, from the bullpen, we have Ben Bernanke.
The Federal Reserve chairman's plan is to create another $600 billion in cash for the purchase of Treasury bonds, which should help suppress interest rates and lower the value of the dollar against foreign currencies. The hope is that once all this new money is sloshing around out in the economy, banks will lend, businesses will hire and consumers will spend.
It's not a bad idea, even if the announcement is likely to have as much impact as the initiative. But monetary policy is a poor substitute just now for fiscal policy, or spending by the government (apart from the Fed) to influence the economy.
Many sensible economists believe Uncle Sam should have stayed in the game, firing money at infrastructure and other projects until things pick up. Such stimulus would entail borrowing, and so would have to be coupled with a long-range plan for reducing a national debt swollen by tax cuts and wars initiated during the Bush years.
But our understandable recent horror of borrowing, and the triumph of Republicans at the polls, makes any more such stimulus politically impossible. So all we can do now is hope Bernanke has his best stuff. hN