» Economy: It’s a Fiscal Problem, Not a Fed Problem implies Fed. Chairman Bernanki
Posted July 23, 2010on:
Just how poor is President Obama’s and Congress’s hearing and how poor is their understanding of what they are told? EVERYONE from the Tea Party Patriots on the streets to our European allies have told the President and Congress that the problem is the government and the governments spending and regulating, but neither the President nor the Congress take heed. The Federal Reserve has printed $1.5 TRILLION in new money that is just setting in our banks because they are afraid to start lending. Why? Because of the actions taken in Congress like the Dodd-Frank Financial Reform bill that in essence covers all of the financial industry but leaves the specifics of any laws to the little bureaucrats to fill in the blanks. No one has any idea what will be filled in and how long it will take for the filling in to stop. When Congress is this lacks in writing a bill the bureaucrats can play with it forever: today they can decree one thing and then next week rescind that law. Banks know this and are simply not going to allow themselves to be stranded out there again with a pocket full of mortgages (loans for any purpose) and no money because Congress was rather more specific on this part of the law: any business determined (by who?) to be at risk of default can be taken over by the government. So to quote the article:
there are limits to Fed fine-tuning. The central bank can produce more money, but that doesn’t mean it can produce more jobs.
Look, the Fed has already injected $1.4 trillion of new money into the economy, of which about $1 trillion of excess reserves are unused and on deposit at the central bank. Putting it another way, the economy has more liquidity than it knows what to do with. What’s the problem? All that excess money is not being used. And this, I believe, is a fiscal problem, not a Fed problem.
Think of all the economic obstacles of spending, taxing, and regulating coming out of Washington. What should be done to spur growth? Keep tax rates down. And stop passing massive regulatory bills, like the bank reform Obama just signed into law.
What else? The White House and Congress should end the war between business and Washington. Listen to what the CEOs are saying. Reduce the uncertainty premium caused by massive deficit spending and 2,500-page regulatory bills. Stop the assault against entrepreneurship. Keep down the cost of new job hires. Stay focused on free-trade expansion.
And then reduce tax rates for large and small businesses across-the-board. Speed up business investment tax write-offs. And extend the Bush tax cuts for another couple of years until a true pro-growth tax reform can be developed — one that will flatten rates, simplify the code, and get rid of unnecessary tax expenditures (which really are spending increases, not tax cuts).
In other words, since businesses create jobs, provide businesses with a new round of tax incentives. Reduce their capital costs and raise their investment returns after-tax.
Noteworthy is a move by several Democratic senators — like Evan Bayh, Ben Nelson, and Kent Conrad — who are calling for an extension of all the Bush tax cuts, including lower tax rates for upper-end earners, capital gains, and dividends. These brave souls are now in open revolt against the White House.
With gold near $1,200 an ounce, the Fed has done its job and then some in providing liquidity. Easier tax rates, rather than easier money, is what will spur jobs and a faster recovery.