The Daily Need

From ‘treasonous’ to ‘banana republic,’ Republicans continue to deride the Federal Reserve

The Federal Reserve offered a grim assessment of the American economy Wednesday, declaring flatly that recovery was still years off and that even more aggressive measures were necessary to help stimulate growth. Those measures, the Fed announced, would include the purchase of more than $400 billion in long-term government bonds, to dry up the supply of safe investments and bring interest rates down on riskier lending.

The move is aimed at easing the credit crunch and encouraging banks to lend more, so that businesses can re-invest in equipment and workers and consumers can take on loans like mortgages to buy homes and spur construction. The Fed said it would raise the money for the program not by printing more currency and expanding its balance sheet, but by selling off short-term Treasury bonds whose interest rates have hit historic lows.

The move is certainly unconventional, and a response to growing calls from analysts and Federal Reserve officials for increased monetary stimulus to make borrowing easier. The goal, the Fed said, is to have a real, quantifiable impact on the cost of doing business, for both business owners and consumers. If loans are cheaper, the Fed hopes, businesses will invest in expansion, hiring more workers and purchasing more goods and services. Consumers, too, will hopefully have an easier time securing loans such as mortgages, which would help revive the sluggish housing market, which has constrained the anemic recovery.

Although the program is different from “quantitative easing” in that it doesn’t require the fed to print more money ex nihilo — out of thin air, essentially — it nonetheless doubles down on exactly the kind of stimulus Republicans have derided as burdening the government with fresh piles of debt. Texas Gov. Rick Perry has twice called the Fed’s policies “treasonous,” and quantitative easing has become something of a bete noir of the Tea Party, which claims the Fed is encouraging ruinous inflation and degrading the value of the dollar.

Rep. Scott Rigell, a Republican freshman from Virginia, gave new voice to those concerns Wednesday, admonishing the Fed for encouraging levels of inflation that would continue to surpass economic growth. “It’s indisputable that low-interest rates favor job creation. That said, the Fed has been, I think, overly aggressive in increasing the money supply, which I think creates the very real risk over time of inflation, including the risk of hyperinflation,” Rigell said. “If they artificially inflate the money supply, it’s what turns countries into banana republics.”

Of course, it’s worth noting that inflation is hardly the key criterion for determining whether a nation qualifies for “banana republic” status. Rather, banana republics are generally synonymous with oligarchies, nations where public policy is designed exclusively for the benefit of private corporations. Barons are granted exclusive access to the country’s natural resources — e.g., bananas — in order to exploit those resources for private gain.

That said, there is, of course, a legitimate concern among some economists that aggressive stimulus by the Fed could eventually trigger spiraling inflation that outpaces consumer demand — a trend that, once it begins, is very difficult to reverse. So far, however, most economists agree that, between the twin threats of inflation and unemployment, unemployment is by far the more worrisome trend, and thus more deserving of the Fed’s attention.

In fact, Fed officials across the country have been crying out for more aggressive measures to counter unemployment. The Fed’s two responsibilities, by charter, are to maintain price stability and encourage full employment. Officials say the central bank has spent too much time worrying about the former while not being proactive enough about the latter, especially in light of the fact that inflation has been meager by historical standards, while unemployment has remain virtually unchanged in the last year or so (in August, the economy generated zero new jobs, according to the Department of Labor).

In a speech earlier this month, Charles Evans, the president of the Federal Reserve of Chicago, chastised the central bank for what he said was its misguided focus on inflation. Unemployment, he said, was the chief ailment infecting the atrophied economy, and necessitated urgent action. If inflation were at unacceptable levels, Federal Reserve officials would be acting “as if their hair was on fire,” Evans argued. “We should be similarly energized about improving conditions in the labor market.”

With its new policy of buying up long-term Treasury bonds, the Fed may at last be heeding Evans’s call — even if the Tea Party objects.

 
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Comments

  • http://pulse.yahoo.com/_VNULVMN6AFVUJ67M5VZTB6Z5NA Ernie Grills

    Republicans are seething mad that people are going to get easier loans and that the credit crunch will be eased for thousands of small businesses and medium sized businesses. That some companies now will be able to avoid the second double dip recession and keep their employees working through these uncertain times. Republicans are mad that the economy might show a nice uptick and maybe this time things stay up. More people go back to work. More NEW jobs added. Republicans are seeeeeeething mad at that. Mad that Obama and his economic initiatives might actually work. That, knowing that big business and the wealthy don’t want him re-elected; he’ll FORCE them to be crazy NOT to stimulate the private and corporate business world with these new outlays. THAT’s why Republicans are so mad. They have from day one in office pledged to oust him and NOT help on ANY of his plans. Just look at the way they’re acting on his jobs initiatives before Congress at this hour! If you can NOTHING an action! – This is what the people are faced with. A DO NOTHING GOP that will cause millions to suffer, just so they can make Obama look bad. — Politics with YOUR lives and homes. Gotta love it! Thanks, Boehner!

  • Anonymous

    “banana republics are generally synonymous with oligarchies, nations where public policy is designed exclusively for the benefit of private corporations. Barons are granted exclusive access to the country’s natural resources — e.g., bananas — in order to exploit those resources for private gain.”

    Sounds like Congress to me… And sounds distinctly like the U.S.

  • kambo21

    If and when the fed buys half a trillion dollars in gov’t bonds, that would be a nice investment in America’s future…. what would make it better is buying the bonds directly from treasury (well, that’s probably asking for too much)… but,    

  • http://pulse.yahoo.com/_SR2N2FEGWG7QX6VJXZQ673ZRGM Rookie

    To be fair, Obama had a chance to really reform the financial system and he never did. This left open to tea party anger. George Soros said in Jan. 2009 that Obama will be in trouble if the economy doesn’t improve because he won’t be able to blame anyone for it since he is using the same policy as Bush while campaigning on change. The media took one year longer than Soros to figure it out. Not to praise Soros, but I dont’ know how Obama can solve an economic crisis that Soro’s can’t.