(ThyBlackMan.com) The Federal Reserve Bank (Fed) through its qualitative easing program(QE) has produced some very impressive unemployment numbers for the month of November. The national unemployment rate dropped from 7.3% to 7.0%. The program attempts to create the right economic environment for job creation. The question is with these good numbers, will the Federal Reserve continue this program or start to taper? The Fed has a dual mandate. Its mandates, as directed by the Congress of the United States, are to achieve full employment and price stability. By continuing quantitative easing at its current level for the near term, the Fed is encouraging employment by keeping money in the economy and interest rates low. It is currently purchasing $85 billion dollars of government debt each month. By keeping interest rates low, it is attempting to stimulate demand and create additional bank business lending.
The demand we are talking about are for products produced by businesses. The way the Fed keeps interest rates low is through buying bonds or buying debt, which is what bonds represent. When the U. S. Government comes to the bond market for funding or financing, the Fed stands ready to buy these bonds or debt. You see, the federal government borrows money to fund the government’s operations. This includes bonds issued by government housing
financing agencies, Fannie Mae and Freddie Mac. The Fed buys these bonds or debt at extremely low interest rates forcing other buyers to either buy the bonds at the same rate or find other means of earning a profit on their funds. Those that can, go into the stock market, which is why the market has been moving higher and making new historical highs daily.
However, the problem with the Fed’s program and the concern of many is how the Fed acquires the money to finance the QE program. The Fed does not go to Congress and request funding like the president, it simply prints the money it needs! That’s right, the money it uses is not tied to any investments or backed by gold. The concern is that if the Fed continues to print money at this rate, the value of the dollar over time will decrease like anything else that there is a lot of or is in large supply. When the value of the dollar decreases, it buys less. When your dollars buy less, you need more of them. The usual way people get more money or more dollars, is to demand wage increases. Workers demands for wage increases usually fall under the mantra of, “We need to be paid a living wage.”
When companies extend wage increases, they usually cover those increases by raising prices. As companies raise prices and the dollar continues to lose value due to the Fed printing machine working overtime, workers demand even more wage increases. Thus the economy spirals out of control with price increases bringing about more demands for increased wages. This is called inflation. Inflation is controlled by raising interest rates. When you raise interest rates, a recession is usually the result. Recessions as we all know cause lay-offs and raises the unemployment rate. Therefore, the Fed is really interested in tapering this program of buying government debt before it affects the value of the dollar and create inflation.
However, for now, unemployment has decreased with more workers finding jobs. Black unemployment for the month of November decreased to 12.5%, black male unemployment dropped to 12.3% from 13.0%, black women saw their rate drop to 11.1% from 11.5% and black teenagers who are taking it on the chin when it comes to joblessness saw their rate decrease from 36.0% to 35.8%. For more information on the unemployment numbers, go to http://www.Jobcreationnow.com and click on the button titled “Behind the numbers.”
Skeptics of the Fed program believe qualitative easing cannot accomplish the task of pulling the economy completely out of this downturn. While these critics agree that the root of the problem is “demand,” meaning businesses need customers with money to spend, they do not see the Fed program creating structural demand ( long term). Once the low interest rates are gone and normal interest rates return, from where is the long term demand going to come? Interest rates cannot stay at these levels forever. Mr. Bernanke, the Fed Chairman, cannot rain money down on people to give them capital to go out and spend. What created long term demand and most of the economic growth in the last upswing in the economy was the increase in debt caused by the increase in home values. As home values rose, consumers used the equity in their homes to expand the economy.
Housing of course is not predicted to recover to its pre 2008 level anytime soon. Most experts think it will be years. Therefore from where is the new revenue going to come to expand the economy? Corporations for the most part are really not expanding their capacity to produce but are increasing profits by eliminating inefficiencies in their operations. The auto business of course is benefiting from the low interest rates, but that ends when QE comes to an end and interest rates start rising again. The auto financing industry, no doubt, will result to creative financing if it has not already, like longer loan repayment programs.
There is really no substitute for a national job creation plan. This administration’s answer right now to get additional revenue into the economy is through spending to repair our infrastructure. Spending on infrastructure, which was what the administration’s American Jobs Act program called for, is no substitute for a national job creation plan. Such spending will not bring us the structural long term recovery we all need. This administration cannot expand the federal government’s payroll to hire enough of the estimated 10.9 million or more unemployed workers to make a difference in our unemployment rate.
According to the Department of Defense’s web site, with over 1.4 million men and women on active duty and 718,000 civilian personnel, it is the nation’s largest employer and the federal government’s largest expenditure. Mr. Obama, if he is to have any impact upon the number of unemployed workers through government spending on infrastructure programs, will have to at least match the payroll of the Department of Defense. With Republicans in charge of the House of Representatives, that is politically impossible. And so it goes…
Staff Writer; James Davis
More information about JD and his Deficit Neutral Stimulus Plan Can be founded at http://www.Jobcreationnow.com.
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