What will it take to get the economy moving again? Two years after everything simply stopped long enough to watch Lehman fall momentum is still against us. When credit markets stop they are very hard to start back up again for a large number of reasons – the most important is the one at the heart of any free market, risk.
Interest rates near zero and a Federal Reserve pumping all the cash they can into the economy may seem enticing, but when banks can’t get any kind of interest on the loans they write they become very nervous about the risk inherent in any loan. Is it really worth loaning out billions of dollars if you’re not sure you’ll be paid back? So the usual mechanism to crank up the speed of the economy, cheap money, simply doesn’t work.
Perhaps there is a role for government – specifically state government.