Gonzalo Lira:
Suppose that I promised to give you free chocolate for the next three years: How much chocolate would you eat today? A pound? Half a pound? A few ounces? Or would you not eat any chocolate at all, once I made the announcement?
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In point of fact, if the chocolate is free, you might not eat any chocolate at all. Every time you make the decision as to what to eat, you might well find yourself repeating the same mantra: “Chocolate is free—I can have it any time I want. So I won’t have any now.”
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This is the problem Ben Bernanke and the Federal Reserve currently have—and it’s their own stupid fault: They have promised to maintain interest rates at effectively 0% until at least the end of 2014—they have in fact announced this zero interest-rate policy (ZIRP) as the hallmark of their strategy to reignite the economy—
—but then they’re surprised when businesses aren’t borrowing more. They’re surprised when lending is in fact contracting. They’re surprised when the American economy doesn’t start borrowing—and thus growing—like crazy.
So the American economy obviously doesn’t benefit from ZIRP. In fact, it stagnates because of ZIRP.
Click through to see who actually does benefit.
Pushing strings through Keynesian levers benefits none over the long run and the operators over the short run...
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