Mortgage Bailout Policies Drive Out Investment in U.S. Economy

The Fed has cut interest rates to ridiculously low levels to try to bail out mortgage borrowers and prop up the U.S. economy.  But that has led to a “vicious cycle.”  The Fed’s cutting rates has led to a severe “credit crunch” and “flight from the dollar” in foreign currency exchanges, notes Stanford Professor Ronald McKinnon in the Wall Street Journal.  In reaction, “Fed responds to the credit crunch by cutting interest rates” further, and as a result, “capital flies out of the country” even faster.  Mortgage bailouts in general are not only a bad idea, but unpopular in public opinion polls, as we previously noted.