Most of us understand the Fed can do little to spark the US real sector; most at the Fed understand that too. Still, if for nothing else but the sake of cheerleading they will continue to gesture.
Not with Twist however which is simply rearranging the balance sheet – lower rates at the long end are not an answer. Bernanke knows that too.
Massive Fed purchases will add to high-powered money and Bernanke figures this may help a tad (even though most of us know a lack of liquidity is not the problem). Indeed, M2 - money and close substitutes - is growing, in the past 6 months increasing 6.8%, in the past 12 at 9.3%. That is fine, but of course most of that increase is parked. That is why the Fed is considering cutting the interest it pays on reserves from the current 0.25% to 0.0 (just as the ECB recently did).
None of this will make much difference however. It won’t make much difference until the fog is cleared regarding future government policy. An interventionist, statist administration has scared the pants off employers. Want to know the single key reason explaining a less-than-robust employment picture? This is your answer.
Small businesses, normally the spark to any recovery won’t take up the slack this time. They would be fools if they were to do otherwise. They’re worried about future health costs and the president’s promises to raise their taxes plus inflict who knows what additional pain down the road on the private sector.
Business leaders take risk but not when the rules change every play. The last we heard, only one in five plan to add jobs next year unless clarity is delivered in November.
The Fed has been an enabler for Washington’s fiscally insane. That is why we have lectured Bernanke to sit on his hands.
Robert Craven
Not with Twist however which is simply rearranging the balance sheet – lower rates at the long end are not an answer. Bernanke knows that too.
Massive Fed purchases will add to high-powered money and Bernanke figures this may help a tad (even though most of us know a lack of liquidity is not the problem). Indeed, M2 - money and close substitutes - is growing, in the past 6 months increasing 6.8%, in the past 12 at 9.3%. That is fine, but of course most of that increase is parked. That is why the Fed is considering cutting the interest it pays on reserves from the current 0.25% to 0.0 (just as the ECB recently did).
None of this will make much difference however. It won’t make much difference until the fog is cleared regarding future government policy. An interventionist, statist administration has scared the pants off employers. Want to know the single key reason explaining a less-than-robust employment picture? This is your answer.
Small businesses, normally the spark to any recovery won’t take up the slack this time. They would be fools if they were to do otherwise. They’re worried about future health costs and the president’s promises to raise their taxes plus inflict who knows what additional pain down the road on the private sector.
Business leaders take risk but not when the rules change every play. The last we heard, only one in five plan to add jobs next year unless clarity is delivered in November.
The Fed has been an enabler for Washington’s fiscally insane. That is why we have lectured Bernanke to sit on his hands.
Robert Craven
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