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Robert ReichFormer Secretary of Labor; Professor at Berkeley; Author, 'Aftershock: The Next Economy and America's Future'Posted: October 16, 2010 02:52 PMBIOBecome a FanGet Email AlertsBloggers' Index
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Read More:Federal Reserve, Jobs, Recession, Robert Reich, Unemployment, Business News
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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.
It's already started. Stocks are up even though the rest of the economy is still down because of money is already so cheap. Bondholders (who can't get much of any return from their loans) are shifting their portfolios into stocks. Companies are buying back more shares of their own stock. And Wall Street is making more bets in the stock market with money it can borrow at almost zero percent interest.
When our elected representatives can't and won't come up with a real jobs program, the Fed feels pressed to come up with a fake one that blows another financial bubble. And we know what happens when financial bubbles get too big.
Robert Reich is the author of Aftershock: The Next Economy and America's Future, now in bookstores. This post originally appeared at RobertReich.org.
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Post to Facebook.Post to Blogger.Post to Twitter.Post to WordPress.Post to TypePad.Post to Tumblr.Post to Yahoo! View All Favorites Recency | Popularity HUFFPOST SUPER USER NABNYC 16 minutes ago (3:31 PM) 230 Fans The federal government loans my money to Wall Street for let's say 1%/year; Wall Street (and the financial institutions it owns) turns around and loans that money back to the citizens at 6%, 8%, or even 25% on credit cards. Wall Street can't lose with this con. I see this ridiculous almost non-existent interest rate as being just one more way our politicians are looting from the American people and giving more to Wall Street. A give-away.Second, the banks use this as an excuse to pay consumers almost nothing on their savings, which forces them to put their money back into the market, so Wall Street can steal that too.
Historically, 5-6% was the standard federal discount rate, and we need to go back to that level. Everything else is just another big con on the public. NABNYC: The federal government loans my money to Wall Street for http://www.huffingtonpost.com/social/NABNYC/the-feds-new-bubble-masqu_b_765368_63934831.html Permalink | Share it warren danzig 23 minutes ago (3:24 PM) 45 Fans When the bubble that has already inflated breaks it will take any chance Obama had at re election with it. All you need to know about the stock market right now is that insider trades are going at a ratio of one insider buying stocks to 2400 selling. Why would the CEOs be selling if they thought stocks were going to go up? What the Fed has done is little short of treason. The only answer is to stop trading with countries who use unfair practices. Build here buy here. America first! warren_danzig: When the bubble that has already inflated breaks it will http://www.huffingtonpost.com/social/warren_danzig/the-feds-new-bubble-masqu_b_765368_63934251.html Permalink | Share it
HUFFPOST SUPER USER Romeover 44 minutes ago (3:04 PM) 192 Fans Why is it so difficult for the nation to invest in infrastructure, with all the real jobs that go with it? Romeover: Why is it so difficult for the nation to invest http://www.huffingtonpost.com/social/Romeover/the-feds-new-bubble-masqu_b_765368_63932580.html Permalink | Share it HAlexandria 10 minutes ago (3:38 PM) 2 Fans Infrastructure investment needs to be done intelligently, and given the process is so incredibly political/regional, that will never happen. In the end "infrastructure spending" results in a whole lot of bridges to nowhere. HAlexandria: Infrastructure investment needs to be done intelligently, and given the http://www.huffingtonpost.com/social/HAlexandria/the-feds-new-bubble-masqu_b_765368_63935402.html Permalink | Share it New comments on this entry — Click to refresh 
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