Maybe US Needs a Recession

From The Economist:

Some economists argue that this could create a much wider form of moral hazard. If long periods of uninterrupted expansions lead people to believe that the Fed can prevent any future recession, consumers, firms, investors and borrowers will be encouraged to take bigger risks, borrowing more and saving less.

So a safety net for the greedy only encourages more greed.

Another “benefit” of a recession is that it purges the excesses of the previous boom, leaving the economy in a healthier state. The Fed’s massive easing after the dotcom bubble burst delayed this cleansing process and simply replaced one bubble with another, leaving America’s imbalances (inadequate saving, excessive debt and a huge current-account deficit) in place.

Should the Fed allow a recession and only step in if it slumps into a depression?







One response to “Maybe US Needs a Recession”

  1. moby Avatar

    I don’t know enough to say. It makes my brain hurt trying to figure it all out.

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