“Yellen said today (yesterday) the Fed hasn’t done enough to combat unemployment even after holding interest rates near zero for more than five years and pumping up its balance sheet to $4.23 trillion with bond purchases.”

A thirsty man doesn’t need a fire hose down his throat. In fact it just might kill him.

Hasn’t done enough? The Fed’s expansion of its balance sheet, i.e. money printing, and its purchasing of mortgage paper at a currently $75 billion a month rate isn’t enough?  Some may say too much.  For the first 100 years of the Fed, they never bought a mortgage backed security.  And now $75 billion a month isn’t enough?  Stop the madness here. (And by the way, where, why and from whom did these Federal Reserve powers come from?)  Five years ago these actions were considered extraordinary and necessitated by emergency.  Somehow they now have become routine.  The Fed is overstepping  its mandate, and self expanding its powers.  All is forgiven if it means higher stock prices, right? Why didn’t we think of this earlier?

Economic Logic

Is there any proof, in today’s world, that low interest rates increase employment?

Even though the unemployment rate has dropped over the past few years, is it therefore logical to assume this drop was a result of extremely low interest rates?  If indeed that conclusion can be drawn, then others may be drawn.  Because the labor participation rate is at historical lows, it can be concluded, via the same logic, that low interest rates result in low labor participation rates. And to continue, the velocity of money has sunk to historical lows because of low interest rates. 

Therefore low interest rates may improve employment, as measured by the Labor Department, but it also slows down economic activity by curtailing work force participation and tamping down the velocity of money.  Same logic at work.

Many more “logical” conclusions can be derived.  But the point remains that the policy of this Federal Reserve must be reexamined.  A simple physics lesson may be all that is required.  For as Newton observed, “for every action there is an equal and opposite reaction."  These low interest rates are having a reaction on our currency, our labor participation rate, and the velocity of money (thus economic activity)  that is destructive. Yet on we go. Pedal down and eyes rolled into the back of the head.

And is it proper, in today’s world, to set 5% or 5.5% as the desired unemployment rate?  Yellen did just that.  Europe and, did we notice the US, has ratcheted up to new higher unemployment levels. If only Janet was as interested in getting the deficit down to “what it used to be," the price of gas back to “what it used to be," the cost of food back to “what it used to be," it might be easier to get behind her misguided mission to get unemployment back to “where it used to be,"

She ignores the featherbedding federal policies that are counter to her monetary attempts to improve employment. She ignores the imbalances in federal spending vs. revenues. She appeases the borrowers and spenders.  She ignores the hobbling regulations that impede job growth. She steals from the savers and encourages the borrowers and spenders. 

In a land far away, in a distant galaxy, there once was encouragement for a high savings rate and a strong currency.

It is folly to attempt the "promoting of maximum employment" with falsified and forced interest rate levels without addressing the counter veiling forces of those faked interest rates in conjunction with the issues and forces of this misguided administration. Promoting manufacturing is essential, but where are the efforts to do so? For without manufacturing we are merely a feeble service economy of hotels, motels, fast food, movie streaming, and electronic gimmickry.

Without a fair return on money we have misallocated resources, a declining currency, and a depressed velocity of money

A consumer with disposable income is a tremendous economic engine.  Isn’t this the missing part to a healthier economy? The consumer has been stripped of this disposable income that a return on savings would normally provide. Instead we reap whimsical policies from Washington  that hamstring the citizen with mandated insurance purchases that joins a disappearance of any “fair return” on savings.  Goodbye middle class. Goodbye disposable income.

Janet must, but likely will not, reexamine the Bernanke program. Emergency action has now become pillow fluffing.  Emergency powers are now daily tools for tinkering with the markets.  The fire is out, Janet. Put away your fire hose.

James Longstreet