Federal Reserve Should Bail Out Main Street, Not Wall Street


Original source: AFL-CIO Now

The Federal Reserve’s announcement this week that it will purchase $600 billion of Treasury debt, also known as “treasuries,” to help stimulate the economy should be a wake-up call to lawmakers that government needs to spend more, not less, to create jobs, economists say.

Here’s Josh Bivens, an economist at the Economic Policy Institute (EPI):

[The Fed purchase] is a welcome acknowledgement that the economy needs more help.…Congress should follow the Fed’s lead and provide this needed support, starting with an extension to unemployment benefits that are set to expire at the end of this month.

AFL-CIO Chief Economist Ron Blackwell agrees, saying that in addition to the Fed buying long-term treasuries,

it should buy infrastructure bonds from states, cities, as well as a national infrastructure bank to help finance the rebuilding of our nation’s infrastructure. That would put Americans back to work right away, reduce our $2.2 trillion infrastructure deficit, increase potential long-term growth and help restore our international competitiveness.

Mark Weisbrot, co-director of the Center for Economic and Policy Research (CEPR)  points out that the economy still needs a huge infusion of cash. He says the Fed could spend this money without even adding to the public debt burden. When the economy is this depressed with high unemployment and unused capacity, he says the Federal Reserve can create money without increasing our deficit or causing inflation.

Even Fed Chairman Ben Bernanke recognizes the need to pump up federal spending to create jobs. Bernanke told Congress in June and July that the economy needed fiscal stimulus. He warned lawmakers not to cut spending—the primary goal of the newly-elected Republican lawmakers.

The irony is that there is enough money in the economy to create jobs, but banks are still not lending and corporations are not investing and hiring. Writing in Huffington Post, Shahien Nasiripour says as a result of the Fed’s consistent long-term lowering of interest rates, corporations have rarely had it better.

Sitting atop a record $1.8 trillion in cash and other liquid assets, non-financial U.S. firms are awash in wealth, Fed data show. Relative to their short-term liabilities, U.S. corporations haven’t been this flush since 1956. By that same measure, their balance sheets are twice as strong as they were just 15 years ago.

Banks are loaded with cash as well. Through September, banks had $981 billion in excess reserves at the 12 regional Fed banks across the country, Fed data show. In August 2008, right before the financial system nearly imploded, banks had just $1.9 billion in excess reserves.

Read Nasiripour’s entire article “Federal Reserve Rains Money On Corporate America— But Main Street Left High And Dry,” here.

Rather than spend that money in the United States to create jobs, Nasiripour reports, the money is flowing overseas, just like the jobs. The proportion of capital expenditures spent abroad has risen from 18 percent in 2001 to 27 percent in 2008, JPMorgan analysts wrote. It’s likely higher today “thanks to growth opportunities prevalent in emerging markets.”

Maybe the Fed should listen to one of its own and spend the money in better ways. Nasiripour quotes Richard Fisher, president of the Federal Reserve Bank of Dallas who said last month:

In my darkest moments, I have begun to wonder if the monetary accommodation we have already engineered might even be working in the wrong places.

Photo: Gisela Giardino, courtesy Flickr, cc by 2.0

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