FOMC meet: Is Federal Reserve running out of options to boost slumping US economy?
The following is my comment on this issue.
The monetary policy in the long run should encourage savings and investments and the stimulus it provides to banks should result in investment out of savings. The policy should aim at to take the banks out of the mortgage mess and for that a Fed Reserve can think of some innovative ways to attract idle funds lying in the economy to banks through some incentives. Banks should offer better rate of interest on savings and credit off take by individuals for consumption purposes needs to be drastically curbed. Consumption should come out of savings and credit combined or out of savings only. It may take some time for the economy to achieve this,but the result will be worh the waiting. Too many products and too much of capital market investments need to be closely monitored. Safety of funds should get priority over profitability and Risk taking and Fed Reserve's policies should be aiming at this. Production oriented investments of banks should be encouraged for job creation in the economy.
Dr.T.V.Gopalakrishnan
(This appeared in ET E paper dated21/09/11)
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