With deficit hawks circling overhead, the responsibility for creating jobs has fallen by default to Ben Bernanke and the Federal Reserve. Last week the Fed said it expected to keep interest rates near zero through mid 2015 in order to stimulate employment.

Two cheers.

The problem is, low interest rates alone won’t do it. The Fed has held interest rates near zero for several years without that much to show for it. A smaller portion of American adults is now working than at any time in the last thirty years.

So far, the biggest beneficiaries of near-zero interest rates haven’t been average Americans. They’ve been too weighed down with debt to borrow more, and their wages keep dropping. And because they won’t and can’t borrow more, businesses haven’t had more customers. So there’s been no reason for businesses to borrow to expand and hire more people, even at low interest rates.

The biggest winners from the Fed’s near-zero rates have been the big banks, which are now assured of two or more years of almost free money. The big banks haven’t used  the money to refinance mortgages – why should they when they can squeeze more money out of homeowners by keeping them at higher rates? Instead, they’ve used the almost free money to make big bets on derivatives. If the bets continue to go well, the bankers will continue to make a bundle. If the bets sour, well, you know what happens then. Watch your wallets.

The truth is, low interest rates won’t boost the economy without an expansive fiscal policy that makes up for the timid spending of  consumers and businesses. Until more Americans have more money in their pockets, government spending has to fill the gap.

On this score, the big news isn’t the Fed’s renewed determination to keep interest rates low. The big news is global ...

The rating agencies are at it again. Moody’s Investors Services says it’s likely to downgrade U.S. government bonds if Congress and the White House don’t reach a budget deal before we go over the so-called “fiscal cliff” on January 2, when $1.2 trillion in spending cuts and tax increases automatically go into effect.

Apparently the credit rating agencies can’t decide which is more dangerous to the U.S. economy – cutting the U.S. budget deficit too quickly, or not having a plan to cut it at all.

Last year’s worry was the latter. In the midst of partisan wrangling over raising the nation’s debt limit, Standard & Poor’s downgraded U.S. debt – warning that Republicans and Democrats didn’t have a credible plan to tame the deficit.  

Now Moody’s is worried about the opposite: The spending cuts and tax increases in the Budget Control Act that will automatically kick in at the start of 2013 – unless Congress decides on a better and presumably more gradual approach — are so draconian they’ll push the economy into a recession.

The ratings agency schizophrenia is understandable. Everyone in Washington – and just about everywhere else – knows the budget deficit has to be dealt with. But anyone with half a brain (including Washington) also knows that when unemployment is high and economic growth still painfully slow, cutting the deficit too much now would make a bad situation even worse.

Remember, the real problem isn’t the deficit per se. It’s the deficit in proportion to the size of the economy. Cutting too much too soon will tip the economy into recession because it would reduce overall demand for goods and services when private demand falls way short of what’s needed. And if the economy goes into recession and begins to shrink, the ratio of deficit to ...

The average CEO made $9.6 million in 2011, even as workers’ wages remained stagnant and unemployment hovered nationally around 8 percent. Chief Executive Officers are being paid at the highest-ever rate since the AP started tracking the figure in 2006, according to a new report from the news organization.

But while CEOs may be reaping the rewards of higher profits and a growing stock market, very little of that achievement spreads as far as the average worker — or even the company’s stockholders:

Profit at companies in the Standard & Poor’s 500 stock index ...

Newt Gingrich has done it again. With his new tax plan he has raised the bar from irresponsibility to recklessness.

Every dollar estimate I’m about to share with you comes from the independent, non-partisan Tax Policy Center – a group whose estimates are used by almost everyone in Washington regardless of political persuasion.

First off, Newt’s plan increases the federal budget deficit by about $850 billion – in a single year!

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Another weaker-than-expected government jobs report Friday put new pressure on policymakers and the Federal Reserve to find ways to spark economic activity and boost hiring, experts said.

The economy added no new jobs on balance in August and the unemployment rate held steady at 9.1 percent, the Labor Department said.

Mainstream economists had been expecting payroll growth of 50,000 or greater, especially as the private ADP National Employment Report earlier this week reported 91,000 private-sector jobs added in August. The government report had just 17,000 private-sector jobs created on balance in August, while government payrolls were trimmed by the same number.

Investors reacted to the dismal August jobs report by selling stocks. The Dow Jones industrial average fell by more than 200 points in the first half hour of trading. Other U.S. and global stock indices were all off immediately by 2 percent or more. The Dow finished down 253.31 points at 11,240.26, while the S&P 500 shed 30.45 points to close at 1173.97 and the Nasdaq fell 65.71 points to 2,480.33.

Government statisticians also revised downward July and June hiring estimates by 32,000 and 26,000 respectively, showing the economy losing speed through the summer. Among the apparent causes: a sharp drop in consumer and business confidence stemming from Washington's partisan head-butting over raising the debt ceiling in July, which led Standard & Poor’s to downgrade its rating of Treasury creditworthiness.

“The economy has stalled out in the wake of the debt-ceiling spectacle and S&P downgrade. Businesses stopped hiring last month and government continues to cut workers. The broad job weakness across industries and the decline in hours worked suggest the economy is perilously close to double-dipping” back into recession, said Mark Zandi, the chief economist for forecaster Moody’s Analytics. “A recession is not assured since ...

“What’s the difference between the United States and Greece?” should be the setup line for a joke. Unfortunately, it’s a question that seems to be stumping many of the people involved in Washington policy debates. Now that Standard & Poor’s has downgraded the US government’s credit rating (along with that of government-controlled mortgage behemoths Fannie Mae and Freddie Mac, and other entities), the policy-wonk community is likely to find this question even trickier.

The analogy to Greece is a farce from the word go. Greece had chronic deficits even in the good years. Its debt-to-GDP ratio was rising in the years before the crash, when its economy was experiencing strong growth. It now has a debt-to-GDP ratio approaching 150 percent. By contrast, in the United States, even with the Bush tax cuts, the wars in Iraq and Afghanistan, and the Medicare prescription drug benefit, the debt-to-GDP ratio was stable during the housing bubble years. It is now just above 60 percent.The problems faced by the Greek economy—and now, through contagion, perhaps the entire eurozone—are nothing like the problems facing the US economy. However, people with a clear political agenda are doing their best to confuse the public and claim that a crisis created by the collapse of the housing bubble is really a crisis of excessive government spending. Their goal is to gut Social Security, Medicare and Medicaid, and they are prepared to use their money and their influence over the media to achieve it.

The second key difference between Greece and the United States is that we borrow in our own currency. At the end of the day, if we cannot tax or borrow the money needed to pay our bills, we can print it. That may ...

Just days after the Treasury Department criticized Standard & Poor’s for “a $2 trillion mistake” in the math it used to justify its credit downgrade of the United States, the ratings firm sent a letter to securities regulators urging them to keep some proposed regulations as vague as possible.

One area in which S&P had specific interest in keeping things vague? A provision that would require the firm to report “significant errors.” The letter was first noticed by Reuters, though you can see the letter for ...

The whole thing is nuts. The economy is a shambles, saved from a free fall only by the Federal Reserve’s unprecedented promise of free money for banks for at least two years. That’s how long a seven-member majority of the Fed’s Open Market Committee expects it to take for significant relief to take hold for the 25 million Americans who can’t find full-time employment.

The 10-member committee’s three dissenters in Tuesday’s decision, all unelected Fed regional board presidents, are free-market ideologues who don’t believe the government has a role to play in reversing the nation’s economic disaster. One is a former Wall Street investment banker and vice chairman of Henry Kissinger’s consulting firm. The other two are University of Chicago school of economics disciples long committed to free-market purism and blind faith in the mathematical models that had much to do with radical deregulation and the subsequent collapse of the financial markets.

That view led Minneapolis Fed President Narayana Kocherlakota, before he assumed his Fed position, to sign a petition that the libertarian Cato Institute placed in various newspapers opposing President Barack Obama’s economic stimulus plan.

The dissent of the three members is thought to have prevented the Fed from pursuing more vigorous action such as the anticipated “QE3” purchase of additional securities. As New York Times columnist Floyd Norris speculated, “perhaps the dissenters really want to essentially say something like ‘We’ve done all we can, and if the economy is still lousy, that is for someone else to deal with.’ ”

Meanwhile, Obama has been reduced to an impotent bystander promising vigorous budget cuts in response to Standard & Poor’s adverse credit rating. The president’s pathetic performance on Monday, as the market crashed, was the low point of his career. Nor did ...

Americans are deeply confused about why the economy is so bad – and their President isn’t telling them. In fact, the White House apparently has decided to join with Republicans and blame it on the long-term budget deficit.

Before I turn to the President, though, let’s be clear: The lousy economy is due to insufficient demand. Consumers – who are 70 percent of the economy — can’t and won’t buy because they’re running out of cash. They can’t borrow against homes that are worth a third less than they were five years ago, and most consumers are bad credit risks anyway because they’re losing their jobs and their wages are dropping.  They also have to start saving for the kids’ college or for retirement, which will cut their spending even more.

 Without enough consumers, businesses won’t hire enough people and pay them enough to reverse the vicious cycle. So we’re dead in the water. Even the stock market has caught on to the truth.

 Which means government has to step in to boost the economy – as it has every time the economy has fallen into recession over the last eight downturns. Include the massive spending on World War II that lifted us out of the Great Recession, and it’s nine. The Fed can help, but it can’t do it alone. And it’s least helpful after a huge asset bubble has burst because the financial system won’t channel low interest rates where they’re most needed – to small businesses and average consumers.

This time we tried one stimulus that was way too small relative to the size of the falloff in demand that started in 2008 — especially given that states and locales cut their spending by almost as much as the federal government increased it.

So we need another – a bold jobs plan. (I’ve offered an outline of what it might look like in prior posts.)

Which gets me to ...

The decision by credit rating agency Standard & Poor’s to downgrade the United States after markets closed on Friday may have kicked up political  READ FULL POST DISCUSS

Imagine your house is burning. You call the fire department but your call isn’t answered because every fire fighter in town is debating whether there will be enough water to fight fires over the next ten years, even though water is plentiful right now. (Yes, there’s a long-term problem.) One faction won’t even allow the fire trucks out of the garage unless everyone agrees to cut water use. An agency that rates fire departments has just issued a downgrade, causing everyone to hoard water.

While all this squabbling continues, your house burns to the ground and the fire has now spread to your neighbors’ homes. But because everyone is preoccupied with the wrong question (the long-term water supply) and the wrong solution (saving water now), there’s no response. In the end, the town comes up with a plan for the water supply over the next decade, but it’s irrelevant because the whole town has been turned to ashes.

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The first week of August 2011 will be remembered as a singularly irrational, wasteful and shameful moment in the political and economic history of the United States. It reflected much of what is wrong with the priorities of our political elites and the obsessions of those who now hold effective veto power over our government.

It began with the world hanging on to every development in the debt-ceiling negotiationsas it fretted over whether Washington’s dysfunction would lead to American default and global calamity. Even robustly pro-American commentators and politicians wondered aloud if the United States could still govern itself.

Yet by Thursday, even though default was averted through a deal that largely capitulated to Republican demands, calamity arrived anyway. Around the world, markets imploded. The debt-ceiling crisis artificially created by right-wing American politicians didn’t matter nearly as much as the dangerous fragility of the global economy and Europe’s far more profound debt crisis.

And to complete this portrait of fecklessness, Standard & Poor’s, which once happily and profitably stamped triple-A ratings on rip-off mortgage-backed securities, ended the week by