Stimulus by Fed Is Disappointing, Economists Say

[Pale Blue Dot]

WASHINGTON — The Federal Reserve’s experimental effort to spur a recovery by purchasing vast quantities of federal debt has pumped up the stock market, reduced the cost of American exports and allowed companies to borrow money at lower interest rates.

But most Americans are not feeling the difference, in part because those benefits have been surprisingly small. The latest estimates from economists, in fact, suggest that the pace of recovery from the global financial crisis has flagged since November, when the Fed started buying $600 billion in Treasury securities to push private dollars into investments that create jobs.

As the Fed’s policy-making board prepares to meet Tuesday and Wednesday — after which the Fed chairman, Ben S. Bernanke, will hold a news conference for the first time to explain its decisions to the public — a broad range of economists say that the disappointing results show the limits of the central bank’s ability to lift the nation from its economic malaise.

“It’s good for stopping the fall, but for actually turning things around and driving the recovery, I just don’t think monetary policy has that power,” said Mark Thoma, a professor of economics at the University of Oregon, referring specifically to the bond-buying program.

http://www.nytimes.com/2011/04/24/business/economy/24fed.html?_r=2&hp

"Disappointing" is a kind term. "Insane", "criminally negligent" and "Orwellian" are the adjectives that come to my mind. And I'm sorry, Mark Thoma, it didn't stop the fall, it paused it while any remaining cushions were removed.

[somone]

1. Their primary concern is Wall Street and Big Business

not working Americans

[sendero]

2. Exactly..

.. and it is not just the Fed, it is the entire government.

[IndyPragmatist]

6. The stimulus was poorly done,

I believe it could have had a much bigger impact, but our congressmen and women seemed to eager to just grab some cash for their district, than putting that money into areas that would help the nation.

There are dozens of sites (mostly right wing) dedicated to all the wasteful spending from the stimulus. And they are completely right. Those billions could have had a positive impact on our economy, but instead, we just pushed the money to pet projects with very little forethought.

*The town of Union, New York is being urged to spend $578,000 in stimulus money that it did not request for a homelessness problem that it claims it does not have.
*Sheltering Arms Senior Services was awarded a contract worth $22.3 million in stimulus money to weatherize homes for poor families in Houston, Texas - but a new report from Texas Watchdog says that the weatherization work was performed so badly that 33 of the 53 homes will need to be completely redone.
*In Nevada, $2 million in stimulus money built a new fire station, but because of budget cuts, the county can't afford to hire firefighters to work there.



These are just a few examples of poorly directed funds. There are plenty of positive programs that came from the stimulus, but there are also billions in wasted funds. Regardless of party, when you just tell Congress that we have billions of dollars to spend, and to go find places to spend it, you likely find a huge amount of wasted money.

[dawg]

3. There's nothing negligent about doing all that is within your power to do.

Benanke has used every tool at his disposal to stimulate the economy. If you're looking for criminal negligence, try 1600 Pennsylvania Ave, the House of Representatives, or maybe look to the idiots who put the House back into the hands of those who believe the "invisible hand" will solve all.

[Pale Blue Dot]

5. This "tool" has caused worldwide inflation in commodity prices,

creating many new "bubbles" that are bound to pop in addition to global unrest; created even more "moral hazard" for TBTF banks; has not created any new jobs; enriched the wealthiest at the expense of the poorest; and, worst of all, the fed is ignoring the massive and growing amount of evidence that all of the above is true.

I stand by "criminal negligence".

[dawg]

8. Your position on this issue is right-wing.

Like most right-wing positions, it's also wrong.

Commodity prices are being driven by increased demand, not US monetary policy. That's why the prices are rising relative to all currencies and not just the US dollar. While our economy is not in anything like a real recovery yet, that is not true of China and the other BRIC countries, and as they clamor for more and more limited resources, the price of these resources rise. Bernanke has nothing to do with it.

This is further born out by the fact that wages are not rising. When an irresponsible fed kicks off inflation, the result is what economists used to refer to as a wage-price spiral. However, ahem ....... wages are not rising. Workers are so exploited in the current economy - they have so little bargaining power - the scenario you envision is not currently possible.

True, specualators can move markets for a short-time, and we could be seeing some of that. But futures contracts have dates, and physical delivery of those commodities must eventually take place, so only true demand (or shortage of supply) can have a long-term impact on prices.

Here's an excellent post by liberal economist Brad DeLong on this issue. I also recommend reading more of Paul Krugman's writings, and Mark Thoma, whose article you cited in the first place. None of these, I think, would fault Bernanke for the steps he has taken. If anything, I think they believe more needs to be done. Bashing this fed is a teabagger issue. If you don't believe me, go to FR and read for yourself.

The DeLong post:
http://delong.typepad.com/sdj/2011/04/this-would-be-a-significant-mistake.html

[Pale Blue Dot]

11. Clever. I might well call your position on this issue "corporatist" or "banker"

So 2 can play the "poison the well" game.

First of all, I have seen this "increasing demand" argument thrown out all over the internet - but never with any data that shows this to be the case. If you have data that shows a level of increasing demand that would explain the meteoric level of commodity price increases, please share it. What there is, instead, is a wealth of data that clearly shows a correlation between QE2 and the rise in commodity prices.

In addition, as I'm sure you know, commodities are priced in US dollars. When the Fed floods the market with dollars, thereby reducing the value of the dollar, commodity prices rise everywhere.

In terms of wage inflation - you answered your own question. Wages are not rising because workers have no bargaining power and it is not in corporations' interests to raise wages. That inflation is happening, especially in food and fuel, in not under dispute by anyone rational.

Since you called my position "right-wing" (as an attempt, I believe, to stifle discussion), I'll tell you exactly what my positions are:

1. The Federal deficit must be reduced. Increasing debt is unsustainable. We should reduce the debt by raising taxes significantly on the wealthiest 20% and corporations, and by significantly reducing military spending.

2. We must have much stronger banking and corporate regulations.

3. We must increase the power of labor unions.

4. We must change the culture of this country to one that values community above money.

That's my "right-wing" stance.

[indepat]

4. Your adjectives are more descriptive

:thumbsup:

[Taitertots]

7. Non-sense. the Fed's reaction was acceptable

Japan did it, no problems.
ECB did it, no problems.
The US did it, no problems.

The only people who we should be bitching at are the Republicans and blue dogs whose tax cuts, deregulation, wars, and spending cuts are destroying the economy. The fed is bailing out a boat with holes in it while the passengers complain that they might get their feet wet.

[dawg]

9. There is a vast rightwing conspiracy against Ben Bernanke.

I'm not kidding.

[Taitertots]

10. The conspiracy is against Obama/Democrats in power

They want to prevent any recovery by pushing for contractionary monetary policy and contractionary fiscal policy.

[FormerDittoHead]

12. "Demand" is counted as "dollars spent". As certain prices (oil) go up, "demand" goes up.

Economic statistics + the stock market are so easily skewed. "Money" is counted the same if it goes the poor or to the super rich. So when the super rich are making ALL the money, our economy is doing great!

The root of the problem, however, is that money put into "the economy" goes directly to the super rich who do nothing to increase true demand.

They're sitting on the money in anticipation of the time when (real) demand actually does increase, killing whatever Keynesian multiplier effect the money might actually have on the economy if it were distributed from the bottom up.

The thing that frustrates me so much is this is so... ECON-101/Great Depression stuff. There was even a TV show on PBS about economics which detailed the reasons for and how we got out of the great depression.

In college, I struggled to get my A MINUS (good teacher, but the bastard refused to give me the "A"), and then turn around and see all the "best and brightest" working for big salaries in all the places which I'm not good enough to work in, go around and act as if this didn't exist.

Doesn't help that there's this GIANT swath of this country who doesn't even want to *LEARN* basic economics rather to get their "education" from talk radio and Fox.

[Pale Blue Dot]

13. I suggest reading the book "Ecconned" by Yves Smith.

It completely debunks the entire basis of the economic theories that have gotten us into this mess.

http://www.amazon.com/ECONned-Unenlightened-Undermined-Democracy-Capitalism/dp/0230620515/ref=sr_1_1?ie=UTF8&qid=1303662103&sr=8-1

[FormerDittoHead]

14. Looks interesting, but just asking: where has this cover graphic been used elsewhere?

I've seen this businessman on the tightrope before - I'm thinking to some documentary?

[FormerDittoHead]

15. I haven't read it yet but I loved the quote at the beginning...

History is the long and tragic story
of the fact that privileged groups seldom
give up their privileges voluntarily.

Martin Luther King