Thursday, November 14, 2013

COTW: Economic Policy in Two Charts

The Senate's Banking Committee will host Federal Reserve chair nominee Janet Yellen this week for a round of friendly posturing before the cameras. Expect no bombshells. What you can expect in monetary policy to come is more of the same. The US Federal Reserve, because it is the handmaiden of financial interest, will continue to keep interest rates near zero and print more money. To do otherwise would risk a repeat of the Panic of 2008. Call it the "Japanning"
of the US economy. This chart explains why there is no apparent high inflation after five years of easy money policy:

Like an addict who no longer gets high on the usual amount of drugs, the general US economy is not responding to quantitative easing, but the stock markets sure are. If reserve injections were evenly distributed throughout the economy the multiplier effect would be higher and stable. Beside benefiting asset owners, the Federal Reserve has a mandate to implement policies that foster full employment, but it and the administration has accepted high unemployment as a new fact of life. Apparently, it is easier to consider US Person "unemployable" than give him a job. Failing to respond to long-term employment while implementing austerity policies has reduced our nation's productive capacity by about 7%:

source: Mother Jones