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BERNANKE, TREASURY PAPER AND (HIS/OUR) UNEMPLOYMENT

June 26, 2013

BERNANKE, TREASURY PAPER AND (HIS/OUR) UNEMPLOYMENT

I have a prediction to make: That Bernanke will be unemployed shortly at the end of his term – that he will not be reappointed as our Fed chief. Talk around town is that our former Secretary of the Treasury, Tim Geither, will be appointed to the position. Personally, I would prefer an academic rather than a Wall Street denizen such as a Greenspan or a Geither, but my preferences have not been on the right side of history, a not uncommon occurrence in these days of a compromised congress.

I have not forgotten that Greenspan and Rubin (old rich Wall Streeters) were big influences on Clinton and advised him to sign a repeal of Glass-Steagall (the former statutory wall between investment and commercial banking), which is the biggest mistake Clinton made during his eight years in office, and which, in addition to Bush’s huge tax giveaways to the rich and corporate class, account for our near-depression and bailouts of 2008. The bankers told us to trust them, that they would not breach the trust reposed in them by approving the repeal. You know the rest of THAT story. The bankers lied then, just as they are now in fiercely lobbying against implementation of Dodd-Frank, a law designed in part to end the potential for another bailout. Apparently they wish to continue using our money and the full faith and credit of the United States to crapshoot – as before – with bailout potential intact. If there is such a thing as financial treason, the big banks are arguably indictable. Dodd-Frank should have been implemented years ago. We the people remain at great risk as a result of such big bank bullying.

Bernanke in announcing long ago that the Fed would buy $85 billion in treasury paper every month until unemployment fell to seven percent sounded good, but I was suspicious at the time that it was rather designed to prop up debt and equity markets and have blogged such suspicions more than once as the debt and equity markets rose to historic highs on both the Dow and the S&P while labor markets languished, seemingly unresponsive to such purchases. That I may have been correct in such suspicions is now borne out by the severe drop in the Dow and S&P following Bernanke’s announcement last week that the Fed may reduce its monthly outlay for treasury paper since, as he suggested, the pace of employment had improved. I am not sure of the connection between his announcement and the market plunge; it could have been correlative rather than causative, though I think it is the latter, and think further that the economy’s continuing lack of aggregate demand will tend to reduce the value of equities even more now that the artificial props are likely to be reduced or removed.

I have another observation to make, as suggested by Paul Krugman, a fellow Keynesian. He thinks that Bernanke should keep the purchase of treasury paper going at its present or even greater rate for the Keynesian effect it has in the economy. Such a policy will either work to reduce unemployment or it won’t, and while admittedly artificial in effect, if the effect is good for aggregate demand in the economy, why not? Aggregate demand fuels employment, and though arrived at in roundabout fashion, why not continue to buy such paper if it can be shown to expand aggregate demand – and thus reduce unemployment? At bottom, such policy is Keynesian pump-priming, and Bernanke can get away with it since, unlike Obama, he is not on the wrong side of the political divide.  Obama could never get away with such Keynesian tactics given the 1880 economic views of the House, so Bernanke’s game is the only one in town that promises to resurrect our economy.

Krugman also makes another point in favor of continuing or even greater purchases, and it is this. He says in effect that Bernanke should not take the BLS employment numbers as gospel; that employment is not improving; that the employment numbers do not reflect new hires but rather withdrawals from the labor force by those who have given up, thus skewing an honest count leading to a supposed improvement in employment. To this I would add that the job increase (if it was) must also be given a qualitative look, i.e., what kinds of jobs are we adding to the economy’s workforce (if we are)? It appears that most are minimum or near minimum wage positions, and if so, query as to how much demand they bring to an economy starved for it.

On the other hand, any improvement in real employment numbers is welcomed. Minimum wage workers may well have been on welfare, food stamps and the like, and to the extent that such new workers are off the dole, taxpayers enjoy reduced social costs. Likewise, any improvement in demand, however little, is to be welcomed. Aggregate demand and nothing else is what drives the economy.

Washington should end its do-nothing and no-gain exchange of political insults and come up with programs that put people to work on good paying jobs in working on our crumbling infrastructure, school buildings (not curricula) and in general fashioning policies (including trade  and domestic vocational education policies) that put America to work in good-paying jobs. Our opportunities are fleeting and our time is being irretrievably wasted by such juvenile political antics to which we are being subjected today. A robust economy, however achieved, is the ultimate answer to all of our debt and deficit controversy, so let’s put America to work. How we do it is not really the issue; the issue is DOING IT. Let’s go!  GERALD  E

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