One of my biggest complaints about legislators or federal regulators is that they often do nothing. Now, in this period of grave economic distress, the Federal Reserve and Congress are pulling out all the stops. Unfortunately, good intentions don’t always equal results.
Yesterday, the Federal Reserve announced its decision that it’s not changing interest rates. That’s hardly a surprise since you really can’t cut rates when they’re already near zero. However, this is still worth noting because it’s such a big let down from the 1990s when the world stopped to hear anything and everything Alan Greenspan had to say. Now the Fed is fighting to stay relevant. It’s already thrown nearly all its tools in to help the economy.
Bernanke & Co. still have a few tricks left up their sleeve. The Fed said that it’s prepared to buy U.S. Treasuries which is an interesting move. The central bank is clearly worried about the effects of a long slowdown in the global economy and the possibility of deflation. However, nobody at the Fed seems to be acknowledging the damage all this liquidity will do to the dollar. Once the economy starts to revive, inflation will come back strong.
The other big story this week was that the House of Representatives passed President Obama’s stimulus bill last night by a vote of 244 to 188. The Senate will start debating their version of the bill on Monday, and the goal is to have something for the president to sign by President’s Day weekend. The price tag on the House bill is $819 billion. Funny, I remember when that used to be a lot of money! It’s now being wrangled out in the Senate.
About this bill, I think the president certainly means well, but it’s really just a transfer payment and tax-credit boondoggle that’s unlikely to create many new jobs. The plan includes things like extra money for birth control, food stamps, Medicare and many other government programs that clearly won’t create any new jobs. Even the highly touted infrastructure spending is much smaller than previously proposed, and it won’t take effect right away or offset cuts in state spending on infrastructure. In all fairness, there are some tax credits and accelerated depreciation for small businesses, but nowhere near enough to help the economy significantly.
I’m sure Ben Bernanke and the Democrat-controlled Congress means well. But whether they can actually help shorten this recession is still very uncertain.