Yes, as of July 13, 2011, interest rates are two low to stimulate the economy. And yes, Federal Reserve Chairman Ben Bernacke is wrong to keep them this low. A simple lesson in supply and demand will demonstrate why.
1. The price or cost of borrowing money is interest.
2. The law of supply and demand reveals that is the price is too high you have a surplus and if the price is too low you a shortage.
In the late 1970s, the fed raised interest rates well into the double digit range to fight inflation. As a result, the price to borrow money was too high and people would more reluctant to assume debt. When the interest rate is 15% the payment on a 100,000 home is 1200--principle and interest. The industry that was hurt more by these high interest rates was the US auto industry. Americans began to avoid the purchase of expensive Chevy and Ford cars for cheaper models from Toyota and Honda. We entered a period of stagflation...where both inflation and unemployment were high. The economy was stagnant. This led to the relaxing of lending rules, to get people to borrow, that remained in place until recently. It led to the housing crisis and the economic situation we find our country in today.
To get people to borrow again, the Federal Reserve has kept interest rates as low a possible. With interest rates being too low, banks have to tighten lending rules. Mainly because banks can not make enough money on the mortgage alone, they change fees to make up for the lack of interest that they earn. People are willing to borrow and companies are willing to borrow. With interest rates being too low, lending rules have become at best more complicated, but it is tougher, at any rate to borrow more money today. If the Fed allows interest rates to rise, then banks will be more willing to lend and loosen borrowing rules. With more people being able to borrow, the economy will grow.
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