Venture Capital Resources

What do you think of this analogy regarding the folly of bailouts and stimulus?

Suppose there is a circus coming to town, and there is a restaurant that will serve the circus members and the crowds that the circus attracts. Now suppose that the manager mistakenly assumes that this boom in business will last forever, so he uses his existing resources to build a new addition to accommodate the new business. Then the circus leaves, along with the crowds that were around watching it, and business falls back to normal levels. Now, does it make sense for the Federal Reserve to give him money to prop up his new addition that isn't needed anymore? This is essentially how the Federal Reserves artificially low interest rates effect our economy as a whole. They lead investors into thinking there are resources available for projects that actually are not there. And when these things fail, the government props them up with fake money, which diverts capital from *productive* ventures, into the ones that are *unproductive*. Do you agree or disagree?

Public Comments

1. That analogy is also akin to what Greenspan did after 9/11, and what Bernanke is doing now.