CONTRIBUTOR: Tell me again when the economy will recover. Why should businesses
invest when the Fed, pumping 85 billion a month, can do all the work for the foreseeable future?
EDITOR: Monetary and fiscal policies are two different things. Through its monetary policy, the Federal Reserve simply makes funds available to banks at low costs. The Feds do not invest in projects.
Companies do not borrow nor do banks lend if they don’t think investments will be profitable. It takes a combination of fiscal policy (e. g. governmental deficit spending) and monetary policy (ample low cost money) to fight inflation.
Government funding of job creating public projects has an immediate impact on the economy, expanded by the ‘multiplier effect.’
