David Malpass On Near-Zero Interest Rates

I like David Malpass' clear, simple economic thinking and analysis.

In today's Wall Street Journal, he points out the damaging effect of Ben Bernanke's Fed's continued maintenance of near-zero interest rates.

Simply put, we know that high interest rates attract investment capital. So the Fed's current insistence on low rates drives capital overseas, starves non-financial US uses of capital, and actually helps delay the onset of any economic recovery.

With all of the Congressional debate over Fed independence and Bernanke's reconfirmation as Fed chairman, we're seeing him choose unwisely for the US economy's long term health.

Too-low US interest rates distort capital allocations, promote funding of projects which won't be profitable in normal interest rate environments, and when they exist at the same time that other countries' rates are higher, facilitate capital migration out of the US.

Malpass is correct in calling for the Fed to ignore Wall Street and raise rates. It's not like current low rates are creating jobs or producing a healthy economic recovery.

Maybe trying something more sensible would work?