Sunday, May 12, 2013

One Reason the Economic Recovery is So Slow

My favorite Keynesian  Martin Feldstein, who was chairman of the Council of Economic Advisers under Ronald Reagan and is a professor at Harvard and a member of the WSJ's board of contributors, recently pointed out in a WSJ op-ed.
The Fed's purchase of Treasury bonds and other long-term securities has not been nearly as large as the increase in the government debt during the same period. The Fed's balance sheet has grown by less than $2.5 trillion since the summer of 2007, while the federal debt has grown by more than twice that amount just since the beginning of 2009. As a result, the public has had to absorb more than $2 trillion of net government debt during the past three years.

Bottom line: Even with the Fed printing record amounts of money, the Treasury, with its borrowing, has been crowding out direct private sector borrowing to the tune of $2 trillion, since the summer of 2007.

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