Fed governor Bernanke believes that it is the low interest rate policy of the Fed that has laid the foundation for a sustainable economic expansion. The governor argues that the low interest rate policy has been instrumental in revitalising household and business balance sheets.
But how is this possible given the massive load of debt relative to income? Moreover, how is it possible that a sustained economic expansion can commence while savings have almost disappeared?
The so-called recovery that we are currently observing is nothing more than a reshuffling process of real funding from wealth generating activities towards wealth consuming activities. There is, however, a risk that this reshuffling process will be arrested if the growth momentum of monetary pumping were to slow down.
