While election results dominated the news yesterday, along with all the analysis of the outcome, equally important was the Federal Reserve's announcement that they intend to interject another 600 billion dollars into the banking system with the purchase of government bonds. This is in addition to the Fed's continuing purchase of Treasury debt using proceeds from mortgage related holdings that could drive the intervention to somewhere between 800-900 billion dollars by next year. If the Fed is correct, this intervention will lead to lower corporate and government bond rates, greater corporate investment and help create a jobs recovery.
With this action, the Governing Board of the Federal Reserve has signaled that fiscal stimulus is an important weapon in the fight against recession. In doing so, however, the Federal Reserve directly opposes the G.O.P. plan for economic recovery. Mike Pence, a prominent Republican congressman from Indiana put it this way shortly after the announcement was made: “Diluting the value of the dollar by continually increasing the supply of money poses an incalculable risk,” he said. “Instead, Congress needs to embrace pro growth fiscal policies to stimulate our economy rather than masking our fundamental problems by artificially creating inflation.”
What are the pro growth policies that Pence talks about? The G.O.P. strategy of cutting taxes while cutting spending will not work according to leading economists, the Congressional Budget Office and Obama's bi-partisan Economic Commission. Cutting spending is a good idea, if accompanied by tax increases to offset, but will only serve to increase the deficit if taxes are cut. I'm tired of hearing Republicans say they are going to put more money in my pocket. They intend to cut taxes on corporations and the wealthy. And the spending cuts? They won't be in defense; I guarantee that. They intend to cut social programs that help the poor.
I've heard the G.O.P. mantra of "get government off the backs of business." Cutting regulations on business is irresponsible. I've had enough of oil spills, mining disasters, tainted lettuce, and auto company recalls. Regulations are in place to protect the consumer. I'm not worried about government being on my back; I've got representatives in government. I'm worried about getting business off my back.
Fiscal stimulus is the weapon of choice by governments fighting a recession. Quoting Laurence H. Meyer, a former Fed governor. “Bernanke (Federal Reserve Chairman) has said that fiscal stimulus, accommodated by the Fed, is the single most powerful action the government can take for lowering the unemployment rate, when short-term rates are already at zero,” Mr. Meyer said. “He has nearly pleaded with Congress for fiscal stimulus, but he can’t count on it.”
A further danger is a movement by the G.O.P. is to bring the Federal Reserve, currently independent, under the control of Congress. Who died and made Republican leader John Boehner an economist? The Republican Road Map espoused by G.O.P. congressmen is a recipe for the rich to get richer and the poor to get poorer. We've already witnessed the largest transfer of wealth from the middle class to the rich in the history of our country - enough already!
I'm counting on the Federal Reserve, the Obama Administration and the Democrats in Congress to reject the Republican plan of tax cuts, deregulation and budget cuts that affect the middle class.
And, that's a view from Missouri.
Note: This article used quotes from the New York Times.
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