Robert Reich Alludes to the Negative Influence of the Fed

Robert Reich served as the United States Secretary of Labor under Bill Clinton from 1993-1997.

He also has been a professor at Harvard, Brandeis and now UC Berkley, written over 13 books and contributed immensely to the Keynesian resurgence during the 1990s and 2000s. Reich’s voice is highly-sought in the media, especially when economic affairs and globalization are mentioned.

His works have covered the perils of American decline, “super” capitalism, the future of business and several ideological books favoring neo-liberalism.

Reich has an important voice in current American political and economic discourse, owing to his particular experience, frank speaking style and, at times, reactionary rhetoric (an example was his assertion that Obama should have nationalized BP).

The latest article by Robert Reich is one that is very peculiar, considering that he is a proponent of Keynes and governmental instrusion into the economy by stimulus and active central banking:

The Fed’s New Bubble (Masquerading as a Jobs Program)

(Writing for the Huffington Post)

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.

Reich is detailing the plan put forth by Federal Reserve Chairman Ben Bernanke, Quantative Easing. In these first two paragraphs, he pushes forth the same assertions put forth by the world’s central bankers and Keynesian apologists. The next few words, however, hold the bomb shell:

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.

Ouch.

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.

Departing quickly from the wisdom enacted by government economists, Reich paints a view that the government may actually be doing more harm than good by continuing to print money and buy up debt.

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.

And with those last words, ladies and gentlemen, he nails it. One of the most progressive economist and political thinkers of the past 30 years finally exposes the harm that the Federal Reserve is doing by continuing its loose monetary policy. He warns that another bubble will develop and that the same problems caused by easy money will manifest once more if current policy continues.

 

If Reich’s words can resonate beyond the blogosphere, then I do hope that Fed Chairman Bernanke is paying close attention.

Even the most outright Keynesians are beginning to change their rhetoric.

Should the Fed get the message?

Advertisements

What do you think?

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s