This assumes that someone borrows the money, spends it, writes a check to someone who deposits it in another bank, and the money is lent again, spent again and again, producing the textbook expansion of $10 in new loans for every dollar in new reserves that the bank receives.
The formula is likely to fail because borrowing activity is so low that banks have a record $1.5 trillion sitting at the Federal Reserve Bank - eligible for loans if creditworthy borrowers show up and apply.
The money is basically a loan to the bank, on which the interest cost falls as the bank makes more and more loans. This, of course, is an incentive to take more risk, making loans that the bank would not have made in the absence of the cheap Treasury funds.
We should remember that we created lots of jobs by making bad loans during the housing bubble, something we should not do again. The SBA has a similar program.
Recent reports on the success of these programs indicate that very few of the more than 6,000 independent banking institutions have joined the programs. Why? Because, with the increase in the savings rate, most banks have plenty of money to lend - they just don't have enough good loan applicants.
President Obama's administration has refused to recognize this reality on Main Street, preferring to blame the weak recovery on banks' unwillingness to lend to "creditworthy" (as if the government knows what this is) borrowers.
A survey of 350,000 independent businesses (by the National Federation of Independent Businesses) indicates that only 8 percent of the owners complain that they didn't get all the credit they wanted in July. An additional 28 percent reported all needs met and 64 percent expressed no interest in a loan.
In 2000, arguably the best economy in recent times with a record percentage of Americans employed, 5 percent complained about credit, not much lower than today.
Only 4 percent of owners reported "financing" as their top business challenge, compared with 23 percent citing poor sales and 36 percent citing unreasonable taxes, red tape, and regulation as their top problems.
Borrowing activity in the NFIB survey is at a 37-year low. Banks have plenty of liquidity to lend, but few qualified takers, which makes sense in an economy where housing is in the doldrums (due to overbuilding) and sales are not growing. Building and sales are conditions that would create the need to expand, buy new equipment, and hire.
So, not understanding the realities, the government creates new programs to solve problems we don't have. This is not helpful.
Bill Dunkelberg is a professor
of economics at Temple University and a nationally recognized expert on small business. Contact him at email@example.com.
Read more of his columns at www.philly.com/Dunkelberg