Of Course The Fed’s Plan Won’t Work — We’re Deleveraging!

The theory behind most of what the Federal Reserve does to stimulate the economy is this: If we make money cheaper, people will borrow more of it–and then they’ll start spending again.

That theory works in most recessions. When the economy begins to weaken, the Fed cuts interest rates. Banks, companies, and consumers see that it now costs less to borrow money to buy the things they want to buy. So they borrow money and buy them. And the economy strengthens again.

But we aren’t in a normal weak economy, says economist Gary Shilling of A. Gary Shilling & Co. We’re in a "deleveraging" economy. And that means that we will keep reducing our debts and borrowing, no matter how cheap money gets.

via GARY SHILLING: Of Course The Fed’s Plan Won’t Work — We’re Deleveraging!.

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