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I think the theory goes that by intervening we essentially created the first wave of zombie companies by papering over losses with printed money. The effect was to smooth over the immediate pain but prolong the downturn. There are some that argue that if left alone, the market would have violently corrected in short order as it had on previous cycles. By not allowing it to do so we have created an insurmountable debt load.

I think thats the general theory.

a source familiar with the matter 1y ago

Yes. One example: rather than allow wages to fall (as other prices fell), both Hoover and Roosevelt administrations did everything possible to keep wages at the inflated level they had achieved. Consider normal supply-and-demand price theory: if you artificially keep a good or service at a very high price, there will be an excess of supply and deficiency of demand, a wasteful surplus. When the surplus is in labor, deficient demand means mass unemployment.

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Pepe NOSTRos 1y ago

OH yah I remember that. The wages had the additional pressure of needing to fall during a raging banking crisis triggered by a real estate bubble that was ready to pop. Wages falling would mess up the loans. Trying to keep wages up ended up coasting all the jobs and really messing up the real estate and therefore the bond market.

something like that