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Narayana Kocherlakota

Who's Responsible for the Next Crisis

By encouraging debt, Congress has made the U.S. prone to instability.
Source of instability.

Source of instability.

Photographer: Mark Wilson/Getty Images

Critics of the U.S. Federal Reserve often argue that its monetary stimulus efforts are creating the possibility of dangerous instability in financial and housing markets. They should focus their concerns on Congress instead.

Despite a long period of extremely low interest rates, it's hard to see any signs of impending financial instability in the U.S. True, price-to-earnings ratios in the stock market are somewhat high by historical standards. But, as the economists Olivier Blanchard and Joseph Gagnon have noted, the stock prices are a logical result of the very low yields in the bond market, rather than a signal that investors are unduly willing to take on risk.