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November 3, 2015


Let’s do a short and selected survey of the business press to try to find an answer to this question. First let’s do the con job Wall Street is pulling on the Fed (and by extension the rest of us since the Fed’s policies jerk us all into the mix as taxpayers and consumers of credit in important and even critical ways). Thus Matt O’Brien of the Washington Post notes that “Sometimes the only good news is that there wasn’t more bad news.” He further notes that inflation is well below the central bank’s  2 percent target, and wages are stagnant, so there’s “nothing to suggest” the Fed needs to raise rates soon to keep the economy from overheating, adding that “it might not even be properly heated right now.”

Wow! What’s proper heat, Matt? When does Wall Street decide we have reached the appropriate degree of overheating (and now under-heating) inflation for the Fed to intervene with moves of interest rates that will benefit their aims and goals and how flexible can the Fed be in adjusting such rates when we are already at near-zero levels with little room to go but up? Is the Fed going to start charging negative rates so that those who save must pay for the privilege and Wall Street can continue to put the difference in their corporate pockets? Must we pay to continue corporate welfare to Wall Street?

Is Matt telling us that business likes the virtually free money the Fed has been providing them since 2008 and Bush’s Great Recession at next to nothing interest rates irrespective of whether we have runaway inflation or (now) even insufficient inflation! What is INSUFFICIENT INFLATION? I thought all inflation, like gangrene, was bad. No? Then does handing virtually free money over to Wall Street at near-zero interest rates cure the curse of inflation? Is it even related? If so or claimed to be so, then who says, and why? Matt’s piece asks more questions than it answers.

Matt with his all- inclusive argument to “keep the good times rolling” for Wall Street covers the waterfront. Wall Street has now presumably succeeded in having it both ways, which should but won’t remove inflation from their dart board of excuses for the chronic underperformance of our economy. They want to keep inflation or the threat of it around on their dartboard of excuses whether it exists or not as a rationale for why the economy is underperforming and how inflation is a threat to the economy whether it exists or not in order to keep the cheap money flowing from the Fed; it is a handy tool to brandish to policymakers and regulators to maintain the flow of virtually free funding even if and when some of their other dartboard excuses such as when the Chinese economy resumes growth or dollar values subside or other dartboard horrors (including unemployment) disappear and whether inflation is up or down. They want virtually free money policy to continue whatever the economic picture – free enterprise, you know. The government should give money to the rich for the latter’s investment or other use free of regulation while simultaneously poor-mouthing the rest of us who are paying the bill.

Such policy has been and is in my opinion a pragmatic as well as a moral failure, a con designed (with the assistance of Wall Street lobbyists) not to actually fight the announced evils of inflation and unemployment but rather to provide a trough full of money to finance the Wall Street crowd. It has anchored the Dow; it’s a huge hit on Wall Street with its funding of their activities. It is trickle down one step removed and the announced evils of unemployment and inflation it was supposedly designed to contain are merely in place to give it a degree of authenticity in policymaking and with such noble language quiet critics like me. It has done little to nothing to live up to its noble pretenses and as played out beyond the world of words has turned out to be a bonanza for Wall Street and a yoke around the necks of the rest of us, and if my analysis is anywhere near right, I cannot and will not be quiet.

Why? Well, with such a policy in place for seven years and counting, employment numbers (if properly measured by BLS in proportion to those who are unemployed and are not seeking employment) are still down from where they should be if the policy worked as claimed, wages remain stagnant or even falling due in part and among other things to hiring practices of contract workers and temps by employers, demand is tepid due to wage inequality and right to work laws and other such hostile laws in state jurisdictions, and the announced evils the policy was supposedly designed to end are still with us in varying degrees and in varying sectors of our economy. Indeed, by some measures, we are worse off than we were seven years ago (falling wages in low-wage sectors and increased unemployment in some higher wage sectors due to mergers and acquisitions etc.), and, as we shall see in Part II, are even facing a possible recession. To me, these and other factors too numerous to cite here are strong indications that the Fed’s now aging policy of handing almost free money to Wall Street for (perhaps) investment or in trades overseas and the bills and bailout liability to the rest of us has seen its day. It doesn’t even pass the standard trickle down test since in such cases our largesse may be trickling down elsewhere. Let’s take a page out of Wall Street’s “free enterprise” handbook and insist that they raise their capital the old-fashioned way in real free enterprise fashion rather than seek financing from the rest of us.

I have a question: If such a policy is so good for America (per the Wall Street propaganda machine), then why hasn’t it worked at some point in these seven years since adoption for you and me and why are we ordinary Americans no better or even worse off than we were and possibly facing an economy in recession featuring even further deflated demand? It is clear to me that the flood of money unleashed by the Fed’s policy adoption went into the pockets of Wall Street and their investors (witness the Dow) and not into new and good paying jobs marked by robust demand where you and I live in the real economy designed for us by our policymakers. I call that the result of a con, and you and I, as usual, are the losers. In words of the street, we have been had and are being had, and it has to end.

I can only conclude from the evidence that the Fed’s “policy” ostensibly adopted to fight the twin evils of inflation and unemployment has failed, that the evil of inflation does not exist, and that the Fed is therefore in this connection “fighting” a phantom. I further conclude (even though officially unemployment is down marginally) that the compensation paid such new hires (especially those who replace older employees who were better paid) is so poor due to wage inequality and because employers can get away with it in a union-less environment that little if any uptick can be noted in aggregate demand. Our underperforming economy (which has lost trillions in production and all the demand, employment and revenues to government that goes with it) as a result of Wall Street big banks’ insolvencies leading to Bush’s Great Recession and the international chaos orchestrated by the banks’ reckless investments) is treading economic water, and will continue to do so until we abandon austerity tactics proven not to work and adopt Keynesian tactics which have been proven to work (but that is a topic for another blog).

I will flesh out new conclusions and discuss the recession watch in Part II. Stay tuned.   GERALD   E


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