At NewsMax: “Uncle Sam Is Squandering Time That the Fed Bought”

Leave your thoughts

The easy-money policies of the Federal Reserve have become less-effective and Americans can expect more of the same fragile and modest economic growth unless Congress and President Obama pass some substantial growth policies.

It has been six years since the president and Congress abdicated their fiscal responsibilities and the Fed had to step in with extraordinary easy-money policies to stabilize the economy. The first two rounds of quantitative easing had little impact, but after the Fed went all in for round three, the U.S. economy stabilized and began to grow modestly.

However, that growth has been uneven and fragile and comes with unintended consequences that may prove worse than the problem it was trying to solve. Its costs now outweigh the benefits, and as a result the Fed has begun a process of ending their extraordinary efforts, especially the zero interest rate.

Yet our economy has not strengthened enough to withstand the ending of the Fed’s accommodative monetary policies. Further, the stock markets (which is one of the few economic bright spots) have become dependent on the Fed’s cheap money and become wobbly every time Fed Chair Janet Yellen uses language that even hints at normalizing monetary policy.

The problem has been that the president and Congress continue to make no substantive progress to revamp fiscal policy during this temporary economic respite. Kicking the can down the road through continuing resolutions and thus preventing a default on U.S. debt is considered a victory these days. Just because the U.S. economy is the cleanest shirt in the world’s dirty shirt hamper is no excuse for not getting anything done.

Yellen gave a warning in a recent speech explaining the Fed’s concern. She believes that a special risk to the U.S. economy is “secular stagnation,” which means our mediocre economic growth might be the new normal. That is, unless there is a “highly expansive fiscal policy.”

What would constitute a highly expansive fiscal policy?

Here are a few ideas: entitlement reform, reducing unnecessary regulations, simplifying the tax code and lowering taxes, cutting overall government spending, producing a budget surplus and reducing the national debt. Instead, the opposite has happened. Fiscal policy has gone from static to dynamically working against monetary policy.

Every day that goes by, the Fed’s cheap-money policies become less-effective and unintended consequences get worse. But each fiscal problem requires political courage and time to produce a bipartisan solution. Unfortunately for our country, time is running out.

Originally Posted on NewsMax

Tags: ,

Categorised in:

Leave a Reply

Your email address will not be published.