Friday, June 22, 2012

Fed Fumbles

The Federal Reserve just announced its latest solution to the slow economy.  It is called the "twist."  They will sell short term bonds and buy long term bonds.  This will hopefully lower long term interest rates.  Whopee!  Interest rates are  already at historic lows, but the private sector does not want to borrow because consumer demand is inadequate.  Instead of trading in the financial markets, the Fed should be buying something that everyone has so as to put new money in the hands of consumers.  You can hear the no-nothings scream socialism.  Why buying bank assets is OK say them, giving money to real people is some how bad.  Go figure!
   The same problem pervades Europe.  The European Central Bank buys assets of failing banks, but does not buy bonds of failing nations. 

Thursday, June 14, 2012


A private firm is all about cash flow.  If the cash flow is negative it can't survive for long.  But, the government (Federal Reserve) is not about cash flow.  It is about estimating the the real productive potential of the economy and increasing the money supply to bring it forward.  Discussion of austerity misses the point of our present unrealized and wasted capacity.  If the banks don't create enough money (loans) to create full employment, the the US Treasury and Federal Reserve must do it.
     Government needs to spend more not less using loans from its own bank, not more borrowing from financial markets. As a recent New York Times editorial says, our problem is inadequate consumer demand.  It is inadequate because unemployed people can't buy and that now includes laid off teachers, police, and fire fighters. What a waste.  All due to myth and superstition and false analogies between private debt and public. 

Tuesday, June 12, 2012

Cross of Gold

Presidential candidate William Jennings Bryan admonished policy makers not to "crucify mankind on a cross of gold." In the face of the financial crisis of 1893 and unemployment, he advocated the coinage of silver from government stockpiles to increase the money supply and increase consumer demand.  Of course, the wealthy opposed him as they were not hurting
     Today the unemployed are being crucified on a cross of austerity that the wealthy says is good for them.  The fact that austerity has failed has not dulled support.  Austerity has already made a deep bite in local police, fire, and schools, and libraries.  Voters in several European countries have vented their rejection of austerity, but no alternative has emerged such as I suggest.  The EU has tried to help banks, but has done nothing to aid consumers so the bank bailouts are not working.