When these short-term capital inflows switched into outflows after February 1996, however, a downward adjustment in the rate of growth in overall domestic expenditure, and therefore in the growing demand for imports, became imperative. The divergent rates of expansion in domestic production and expenditure, respectively, were also being financed to an increasing extent with domestic bank credit, or simply the creation of additional money.
I also want to specifically address the argument raised by critics that an extended period of low interest rates will discourage households from saving and, as a result, diminish the longer-run economic growth prospects of the U.S. economy. Currently, households have a number of reasons to save in addition to their desire to earn interest.