The Fed has pumped so much money into the economy, yet the economy is still… the economy.
In her first Congressional appearance as Chairman of the Federal Reserve, Janet Yellen cheered Wall Street with her promise to continue the easy-money policies of predecessor Ben Bernanke. But Judy Shelton warns in our pages that “when the low-grade fever of perpetual inflation becomes a full-blown economic malady—when the next financial bubble bursts with horrible consequences for the real economy—average Americans will pay the biggest price.”
While Ms. Yellen’s Senate testimony today is likely to attract more media attention, we’d say this week’s most important speech from the Federal Reserve system came last night in Texas. Before a gathering of financial executives, Dallas Fed President Richard Fisher quantified how much money the central bank has been pumping into the economy. Mr. Fisher said that total reserves of depository institutions “have ballooned from a precrisis level of $43 billion to $2.5 trillion.” He added that “the amount of money lying fallow in the banking system is 60 times greater now than it was at year-end 2007. One is hard pressed to argue that there is insufficient money available for businesses to put people back to work.”
“It is my firm belief,” he continued, ” that the fault in our economy lies not in monetary policy but in a feckless federal government that simply cannot get its fiscal and regulatory policy geared so as to encourage business to take the copious amount of money we at the Fed have created and put it to work creating jobs and growing our economy. Fiscal policy is not only ‘not an ally of U.S. growth,’ it is its enemy. If the fiscal and regulatory authorities that you elect and put into office to craft taxes, spending and regulations do not focus their efforts on providing incentives for businesses to expand job-creating capital investment rather than bicker with each other for partisan purposes, our economy will continue to fall short and the middle-income worker will continue being victimized, no matter how much money the Fed prints.”
Game. Set. Match.
This is why I don’t believe the US is a completely lost cause; why our best days are behind us. Federal government policy is completely at odds with “providing incentives for businesses to expand job-creating capital investment” or “creating jobs and growing our economy”. This administration wouldn’t know how to grow the economy if you held a gun to its head (metaphorically speaking, of course). Candidate Obama didn’t want to create wealth, he told Joe the Plumber, he wanted to spread it.
On that, and that alone, he has kept his promise. But if the dry rot hasn’t penetrated too deep, the house divided may still be saved. Put another way, if my faith is in capitalism, that faith has not been shaken. What we have had lately is crony socialism, quite a different thing.