Millions and millions of Americans are having their lives and families ruined by losing their jobs, their homes, and their savings. And many hundreds of billions of “stimulus” dollars have been authorized for the relief of a few banks and industries represented by a handful of powerful lobbyists.
The tragedy of it all is that the “stimulus” packages were never necessary in the first place and are not necessary now.
All this time there has been in place a fully operational mini-agency within the Federal Reserve System that has many trillions of dollars of financial ability in hand that could be immediately pumped into the economy to end our depression, bank problems, and foreclosure crisis virtually overnight – the Federal Reserve’s Open Market Desk (FOMC). No amount of federal spending can offset inadequate levels of liquidity and inadequate levels of consumer and business spending; and the Desk’s operations are the only way to get that liquidity.
The operations of the Open Market Desk are directed by a committee of 12 bureaucrats, all of whom are employees of the Federal Reserve System and led by the Fed’s Chairman. Few, if any, are post-Keynesian macroeconomists and none of the 12 appears to have real world experience in commercial banking or business. In a word – they are unqualified for their presidential appointments and should not have been confirmed by the Senate.
The pervasive lack of qualified FOMC decision makers is a presidentially inflicted tragedy for America because the job of the Open Market Desk is to provide whatever additional money and credit our economy needs without providing so much there is excessive consumer and business spending that results in inflation. It does this by literally creating liquidity and then getting it into our economy by either directly buying assets in our financial markets where such assets are openly traded and priced. The assets “back” the liquidity the Desk creates. That is exactly how our economy’s supply of money and credit has expanded for almost a century to meet the needs of our growing economy.
The FMOC need not buy only financial assets to encourage increased consumer and business spending so that employers are led to hire more employees. For example, it could, and recently has, created money and sent it to foreign banks in the rather off-chance that saving the foreign banks from losses would somehow have a positive effect on their United States bank competitors and thus somehow cause business and consumer spending to somehow expand in the United States so that businesses and non-profit producers would hire more employees.
The FMOC also can, though it has rarely done so, encourage customer spending by creating money and sending it directly to potential customers. For example, it could create money and use it to send money to Social Security recipients each month – people with high propensities to consume.
Whatever the method and route it chooses, the Desk can pump more money and credit into the economy each day to increase spending more than the entire latest “jobs bill” will over the next three or four years. And the Desk could keep doing this every day until the depression and credit crisis are ended.
Would pumping in more money in such ways mean inflation? No, for if there comes a time when there appears to be too much liquidity in the economy such that it might cause inflation from too much consumer and business spending, the Desk can reverse the process and instantly within hours (hours, not days or weeks) take any of what it determines to be excess money out of the banking system and the economy.
No new federal regulations, authorizations, or taxes are required for the Desk to increase the amount of money and credit in our banks, to be directly sent to potential consumers, so our economy has adequate levels of liquidity and customer spending.
The Desk has been doing this for years and its staff knows how to do it. The only thing missing is an order to the Desk to do so. And that requires both competent macroeconomists with real world commercial banking and business experience, and appointees who are empathetic with families and business owners who have not spent their entire lives, as they have, in secure positions with secure incomes and secure pensions.
It does not take a rocket scientist to figure out that our consumers and businesses and financial institutions, with an abundance of liquidity again in hand to loan or spend would rush to finance new homes and refinance existing homeowners as well as massively increase their loans to people, businesses and governments. So prosperity can be quickly restored and certain banks and businesses and families would be able to “earn” their way out of trouble instead of requiring more and more government handouts.
Unfortunately for four long Obama years the Desk has not been ordered to significantly expand our economy’s supply of money and credit to the levels needed to maintain full employment. Instead the bureaucrats populating the Open Market Committee have periodically lowered the interest rate banks charge each other to borrow reserves overnight – apparently in the incredibly naïve belief our banks will make more long-term loans and credit available if they can get money for a few hours from other banks.
If the committee members understood macroeconomics (the economics of monetary and fiscal policy), or weren’t too busy giving speeches and being important, they would give the Desk the appropriate orders to increase liquidity. They have not – so our banks are desperately short of reserves and money to lend and their inability to provide normal financing and credit is ruining millions of American families and businesses. Don’t blame the banks and don’t blame the Congress or President Obama. Blame 12 bureaucrats who have neither appropriate educations nor adequate real world experience in commercial banking or business.
There is no excuse for letting a handful of unqualified bureaucrats destroy our economy, ruin millions of peoples’ lives, and threaten vital government programs. It’s time for Congress and the press to hold their feet to the fire. President Obama should either accept their resignations and replace them or, as he has already done with one of them (Geithner), promote them up and out of the way. The American people, political legacies, and the tax revenues needed to fund healthcare and other vital programs depend on it.
The president’s challenge will be to find qualified replacements. More of the same unqualified organization climbing and unempathetic bureaucrats won’t cut it. Until he or the next president acts investors will face a market that is going nowhere.
Bottom line for Investors: Qualified replacements are not on the horizon. A third quantitative easing is likely to be undertaken by the same people in same way as the first two and have the same effect of the economy and thus the value of shares and bonds of both our private companies and businesses as the first two - very very little.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
