The Fed's New Bubble (Masquerading as a Jobs Program)Robert Reich - Former Secretary of Labor; Professor at Berkeley; Author, 'Aftershock: The Next Economy and America's Future'
Posted: October 16, 2010 02:52 PM
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The latest jobs bill coming out of Washington isn't really a bill at all. It's the Fed's attempt to keep long-term interest rates low by pumping even more money into the economy ("quantitative easing" in Fed-speak).
The idea is to buy up lots of Treasury bills and other long-term debt to reduce long-term interest rates. It's assumed that low long-term rates will push more businesses to expand capacity and hire workers; push the dollar downward and make American exports more competitive and therefore generate more jobs; and allow more Americans to refinance their homes at low rates, thereby giving them more cash to spend and thereby stimulate more jobs.
Problem is, it won't work. Businesses won't expand capacity and jobs because there aren't enough consumers to buy additional goods and services.
The dollar's drop won't spur more exports. It will fuel more competitive devaluations by other nations determined not to lose export shares to the US and thereby drive up their own unemployment.
And middle-class and working-class Americans won't be able to refinance their homes at low rates because banks are now under strict lending standards. They won't lend to families whose overall incomes have dropped, whose debts have risen, or who owe more on their homes than the homes are worth -- that is, most families.
So where will the easy money go? Into another stock-market bubble.
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More:
http://www.huffingtonpost.com/robert-reich/the-feds-new-bubble-masqu_b_765368.html:shrug:
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