We came into this crisis with a trillion-dollar deficit and very low interest rates, challenging our ability to fight this recession with standard measures, such as government spending and central bank interest rate cuts.
Some believe that an inverted yield curve causes a recession as banks become less willing to lend, as their cost of funds (short-term rates) are higher than the price they can charge on a loan.
In capitalism, private banks, through their loan-making process, produce most of the money. The government provides the currency—the dollar bills—but the only way to get them is to exchange bank money for currency.
In 2013, one of the most prominent economists in the U.S., Harvard professor Martin Feldstein, warned investors, “The banks can use these excess reserves to create loans and deposits, which will increase the money supply and fuel inflation.”
Anyone reading today’s financial press would think the U.S. economy is accelerating—finally taking off from its post-financial crisis lackluster performance to what Tom Brokaw called “a roaring economy” on Meet the Press this past weekend.