Is Washington poised to create another bubble?
Fed Chairman Ben Bernanke's urging banks to lend to small businesses could create another credit bubble.
Chairman of the Federal Reserve Ben Bernanke speaks about the flow of credit to small businesses during a Federal Reserve Forum in Washington, July 12.
Larry Downing/Reuters
Remember when the government pushed banks to lend to people who could not afford mortgages? That's right. We had the housing bubble that first over inflated our economy and then led to its collapse. We have all been suffering ever since.
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Jeff is the Jack C. Massey Chair in Entrepreneurship and Director of the Center for Entrepreneurship at Belmont University in Nashville, Tenn.
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Well, Washington is at it again.
It seems that Fed Chief Bernanke is pushing banks to more lend to small businesses.
Lack of credit is not the problem facing small businesses right now, so using a small business government induced stimulus is not the answer. The latest survey of business owners by the NFIB clearly supports this. They found that 90 percent of the owners surveyed reported all their credit needs are currently being met (or they did not want to borrow).
If we push loans to small business owners, especially new entrepreneurs who are bad credit risks, we will create yet another bubble that will inevitably burst, sending our economy into an even worse decline than we have already been experiencing. And since small businesses have almost always led the way out of recession, such a bubble will also make the recession last much, much longer.
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