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Robert Reich
NationofChange / Op-Ed
Published: Sunday 16 September 2012
“A smaller portion of American adults is now working than at any time in the last thirty years.”

Two Cheers for the Fed, but Thumbs Down for Moody’s and the Deficit Hawks

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Federal Reserve Chairman Ben Bernanke

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 lender’s desperation to park their savings in Treasury bills. The euro is way too risky, the yen is still a basket case, China is slowing down and no one knows what will happen to its currency, and you’d have to be crazy to park your savings in Russia.

It’s a match made in heaven – or should be. Because foreigners are so willing to buy T-bills, America can borrow money more cheaply than ever. We could use it to put Americans back to work rebuilding our crumbling highways and bridges and schools, cleaning up our national parks and city parks and playgrounds, and doing everything else that needs doing that we’ve neglected for too long.

This would put money in people’s pockets and encourage them to take advantage of the Fed’s low interest rates to borrow even more. And their spending, in turn, would induce businesses to expand and create more jobs. A virtuous cycle.

Yet for purely ideological reasons we’re heading in the opposite direction. The federal government is cutting back spending. It’s not even helping state and local governments — which continue to lay off teachers, fire fighters, social workers, and police officers.

Worst of all, we’re facing a so-called “fiscal cliff” next year when $109 billion in federal spending cuts automatically go into effect. The Congressional Budget Office warns this may push us into recession – which will cause more joblessness and make the federal budget deficit even larger relative to the size of the economy. That’s the austerity trap Europe has fallen into.

Mitt Romney has been criticizing the Obama administration for not doing more to avoid the cliff, but he seems to forget that congressional Republicans brought it on when they refused to raise the debt ceiling. They then created the cliff as a fall-back mechanism. Romney’s vice-presidential pick Paul Ryan, chair of the House budget committee, voted for it. 

It’s a mindless gimmick that presumes our biggest problem is the deficit, when even the Fed understands our biggest problem right now is unemployment. Yet even the nation’s credit-rating agencies have bought into the mindlessness. Last week Moody’s said it would likely downgrade U.S. government bonds if Congress and the White House don’t come up with a credible plan to reduce the federal budget deficit. (Standard & Poor’s has already downgraded U.S. debt.)

Hello? Can we please stop obsessing about the federal budget deficit? Repeat after me: America’s #1 economic problem is unemployment. Our #1 goal should be to restore job growth. Period.

The Federal Reserve Board understands this. And at least it’s trying. But it can’t succeed on its own. Global lenders are giving us a way out. Let’s take advantage of the opportunity.

This article was originally posted on Robert Reich's blog.

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ABOUT Robert Reich


ROBERT B. REICH, one of the nation’s leading experts on work and the economy, is Chancellor’s Professor of Public Policy at the Goldman School of Public Policy at the University of California at Berkeley. He has served in three national administrations, most recently as secretary of labor under President Bill Clinton. Time Magazine has named him one of the ten most effective cabinet secretaries of the last century. He has written thirteen books, including his latest best-seller, “Aftershock: The Next Economy and America’s Future;” “The Work of Nations,” which has been translated into 22 languages; and his newest, an e-book, “Beyond Outrage.” His syndicated columns, television appearances, and public radio commentaries reach millions of people each week. He is also a founding editor of the American Prospect magazine, and Chairman of the citizen’s group Common Cause. His widely-read blog can be found at Robert Reich's new film, "Inequality for All" is available on DVD
and blu-ray, and on Netflix in February.

From the beginning of the

From the beginning of the Recession, I've told friends, family, and even my state senator that we, as a nation, need to buy our own debt. It should have been (and still could be) couched as the patriotic thing to do, a kind of bond drive like was done during WWII.

Because Moody's and the like gave our debt a junk status, only China was interested. Now we have this huge outcry over where our debt is!

It's not too late, but I don't know where to go with this. We should be able to buy back our own debt, right? Let's start a Debt Bond Drive!

Ok, for a start how is it

Ok, for a start how is it patriotic to fund bad decisions? Particularly at rates that sane people wouldn't even take from organisations that aren't broke, let alone the USG. Secondly nobody gave US debt junk status, it's AA- last I checked. How a country gets an AA- with over 100% debt to GDP ratio, several wars, and no obvious way to get out of deep financial problems (including complete denial about same from most Americans, including the author of this article) I don't know. But go ahead, buy something that gives you half a percent interest and is certain to default. Sell your gold to do it, to me.

It should be obvious that

It should be obvious that there is a huge gap between the $3 trillion dollars businesses are holding on to and the "entrepreneurs" who are the supposed job-creators...oh, wait, the entrepreneurs would have no one to sell to anyway. Maybe we should pay the entities who are holding the $3t to just spread $100 bills in the air over cities, towns, farms...everywhere! Just so long as I am the first to be rained on by these $100 bills!

Robert, no cheers for the

Robert, no cheers for the Fed. They are just giving more money to bankers (buying mortgage backed securities) and rewarding felons. We all know how well that has worked the other 3 or 4 times.
Two cheers for the Fed would be appropriate IF they had finally decided to put some of the money the 1% stole back in the pockets of the 99% they stole it from.
Retiring student loans would be a good beginning or putting money into restructuring loans that destroyed the wealth of millions of families.
Moody's should be in jail along with the bankers Obama refuses to prosecute. They conspired with the banks in rating junk mortgage securities AAA. Without their mendacity, the economic collapse would have been much smaller.
If they were prosecuted under RICO statutes, we could get our money back.

I hate to be a stickler about

I hate to be a stickler about this, COLUMBO, but someone should tell you that tariff is not spelled "tarrif," and the possessive "their" is not spelled "thier." I thought at first sight it was merely a typo, but you repeated the errors several times.

I have to admit that I have had a negative impression of "free trade" since Year One. So many good-paying blue-collar jobs were shipped overseas, with no compensating increase in jobs in return. After WWII's completion, America was the most prosperous nation in the world, with more than enough jobs for everyone. But the deeper we get into Free Trade, the more obvious it is to me that those jobs that were sent overseas by the thousands will never come back.

And what can the workers do that lost those jobs? Flip hamburgers for McDonald's, be a sanitation engineer (janitor) at the public schools, or work at WalMart for a shrunken salary? The unions sensed this would happen, and they fought against Free Trade, but all the politicos on both sides of the aisle were gung-ho about it.

Now everything I buy is assembled in Mexico or created in China, India or Pakistan. What's "Made in the U.S." these days?

Toilet paper.

Genetically-modified corn.

Beefsteaks saturated with antibiotics, hormones and even pesticides.

We were once self-sufficient, now we depend on China for virtually everything that was once proudly made in the U.S. Most of our factories and warehouses are in ruins, and the skills our workers had, lost. Seems to me that makes us very dependent on the good will of China, and if we have some dispute with them, they can blackmail us by threatening to not ship anything to our shores...and where would we be then?

I've read some of the rah-rah stuff for Free Trade. Creates prosperity for us. (Really?) Makes general merchandise cheaper. (It would have to, wouldn't it, since we now have smaller incomes.) Blah-blah-blah. Seems to me it just makes a FEW people very, very rich.

And I'm a retired senior now, and the medicines I take are manufactured overseas, and I wonder about their safety. And Big Pharma charges us outrageous prices for items actually supplied from places where labor is cheaper, so it's no wonder they have the highest profit margins of any industry.

And the foods we buy from overseas, are they really safe for human consumption, long-term? How can we know, if they only kill us slowly, or make us sick after a while?

So, yeah, I fault politicians of both parties for Free Trade. And I hate to be "old-fashioned" or a "stick-in-the-mud," but I just don't think Free Trade (so-called) has been good for Americans who work for a salary. I honestly can't see the benefit, but I am aware of the dangers.

When Clinton signed Nafta a

When Clinton signed Nafta a few days after being elected, the container ships had already been built. The containers were ready and filled . It was a done deal . lets look at the why. Before the "FREE TRADE" ,anything coming in was taxed (tarriffs) .The tariffs preserved jobs but also preserved the solvency of government . The stream of income from tarriffs was diverted into the pockets of those who spent millions to gain billions . A job that gave the government taxes for general revenue ,social security and medicare turned into deficit spending to be passed to the middle class and thier children . The money saved by employers spent on wage taxes ( thier share ) now flowed into thier pockets of the rich not the governments . No more property taxes for local governments either . No state income taxes . No regulations to protect workers .There was no need to provide medical insurance, pensions or retirement plans .Sure it cost a lot of money to bribe our elected government officials but like I said millions for billions . So who was getting the the Free Trade benifits ? Not the American workers losing thier jobs . No politicians are telling you about this . Read this again . When it becomes cheaper to make it here , there will be jobs . Cut this out and read it often . Think about it and comment on this . Tarrifs were not making us poorer. In the 60s and 70s Americans were buying millions of VW beettles and paying very stiff tarrifs . The auto industry and the government did not go broke .

I've often thought that if

I've often thought that if the trillions given to the banks as bailout money had instead been given to responsible but suckered home owners the air in the housing bubble could have been partially let out and the banks would have received their debt money via home owners who would now be out spending. Yes I can see the problem with this idea not being fair; socialism is just for the rich. But make no mistake, you still have to produce something to sell if you want a real economy instead of a virtual one. You can't base an economy on bubbles, derivatives, ponzi debt schemes and war.

When interest rates were

When interest rates were lowered it was Robert Reich's reaction that I most wanted to read. Three years ago I promised myself that I would learn all I could regarding the economy. Reich has been so helpful. He's easy to understand and his arguments are logical. Now I will share what it is like for those below the poverty level. In my small, low income town we are developing a buying co-op, looking into small, home based businesses, and developing a stronger community. We will also vote for Obama and other democrats; not because they are exactly what we want but the alternative is exactly what we don't want. Our plans will not help the economy, I am afraid, but hopefully it will help our survival.

Uh, isn't Moody’s the one

Uh, isn't Moody’s the one that rated those worthless CDO's as AAA?

As recent decades show, debt

As recent decades show, debt reduction has little to do with reducing debt, everything to do with upward wealth redistribution. If a million dollars is taken out of human needs budgets, it simply goes into covering the costs of ongoing, massive tax cuts for the rich while covering the costs of building factories outside of the US, shipping out our jobs -- not into debt reduction. If we start catching up on paying down the bent, don't worry -- another war will be launched, ensuring the continued elimination of all spending on America's needs. Ultimately, this should make the masses desperate enough to resume a sort of slave state -- something like a bee colony where the worker bees exist only for the benefit of the queen bee.

You need to study up on bee

You need to study up on bee colonies. A hive is a well organized society in which workers carryout specific tasks that benefit the colony as a whole. The queen is well attended, but only by a small fraction of the colony. If any bee is a slave it is the queen who, though pampered, has only one function-to produce eggs to increase the colony. If the queen dies or ceases to produce, the workers replace her by feeding royal jelly to the larvae. Perhaps this is a model for citizens (workers) and government (queen) that we could emulate with benefit.

At least with a bee colony

At least with a bee colony the queen bee is the mother of the other bees.

"Repeat after me: America’s

"Repeat after me: America’s #1 economic problem is unemployment. Our #1 goal should be to restore job growth. Period."

That pretty well says it all but the government can do very little to change this situation beyond tax incentives to business. But tax incentives won’t do much good as several corporations are now headquartered in tax free countries where they pay no taxes on their massive incomes produced by a low wage work force. The politicians won't take the necessary action of legislating the end of the exportation of White and Blue Collar Jobs to low wage countries as long as Wall Street and the big money Oligarchs are allowed to use unlimited amounts of private money to end any real regulation and buy the complete allegiance of all three branches of our Government.

The idiocy of provoking endless foreign wars and the massive taxpayer spending that is required to supply all the military hardware to fight these wars is sheer lunacy when you consider that most of this hardware is also built by low wage labor in foreign countries. In the event that a major international war scenario should become reality, getting access to all this foreign built military hardware is going to be a little difficult as all the oceans become a segment of the international battlefield. I’m beginning to believe a lot of the forecasters out there that are predicting a short duration Nuclear conflict that would move the few planetary survivors back to a much earlier period in history. This would explain why our leadership ignores all the basic strategic security considerations of war and the two large military powers with Nuclear capability, Russia and China, and their many allies who have already questioned our attacks on sovereign countries and our economic policies that have brought most of the western countries to their knees. If this is the case, we have narcissistic maniacs in positions of leadership that must be removed immediately for their safety as well as the survival and future renewed growth of the rest of the planet !

On the contrary, there is a

On the contrary, there is a great deal the government could and should do. The stimulus package was way too small and too short to accomplish the mission. Military procurement is primarily domestic, at least for the large and "durable" items, and wages for defense industries are well above average. Think about the 1-2 billion dollar stealth bombers=(500x$2,000,000) schools, the multi-hundred billion dollar nuclear powered aircraft carriers and submarines, and those multi-million dollar expendable tanks, all to preserve our access to mid-eastern oil. There is a lot that the government could and should do to stimulate domestic demand and production. It's a matter of priorities.

We all know what to call it

We all know what to call it when they do the same thing over and over again, expecting a different result, right?

Reich is correct, but in this

Reich is correct, but in this world of economic insanity where an imbecile like Geithner is Secretary of the Treasury, economic discussion has deteriorated to little more than incoherent babbling of fools. Nonetheless, Reich tries to bring reason to the insane asylum.

I believe that Reich over looks one facet of the situation -- interest rates for the large developers is not zero; it is far less than zero. The morass of corruption in Washington and throughout the nation, which the Tea Baggers so vigorously support with their moronic call to abolish regulations, has state, local and federal governments giving mega-developers so much money to construct anything that the cost for them to borrow money has become a profit center.

We see that it LA. In the last ten yeas, the LA City Council has given developers in Hollywood and downtown over $1.5 BILLION and they pay no incremental property taxes on their projects. It does not matter if the project turns out to be the largest financial failure in the nation, LA funds more and more of them. The Hollywood-Highland Project lost about $454 Million and mayor-wannabe Garcetti promotes the biggest loser as the reason to give more tax dollars to his developer buddies.

When it comes to mega-projects the combination of zero interest rates plus enormous public subsidies cannot convince developers that they should build. Instead, they tax all the money for the initial planning, get a gazillion exceptions to every building code under the sun and then they flip the project -- but first they collect the millions of tax dollars which the city fronted their LLC's and LLP's to work up the project.

When there has been no prospect of real gain in middle class and lower class buying power, there is no market to build anything.

Good point, Scott, on the

Good point, Scott, on the subsidy of mega-development flops. You have described the real estate analogy to the Bain LBO-strategy deployed to great personal gain by Romney, from 1984 onward.

What we need to do is to

What we need to do is to either make all income subject to the same tax rates. Roll capital gains taxes, dividend taxes in with personal income taxes. Eliminate all tax breaks execept for home mortgage, education, retirement and charities. Keep Bush tax rates and the government will still bring in more money. This coupled with reasonable cuts will reduce the Federal Budget and free up capital for businesses to borrow. If banks won't make loans then the government should institute a fee on banks that don't loan a certain percentage of working capital and then loan that fee money to businesses who are making US only purchases. This approach address both issues at the same time and keeps the Bush personal tax rates.

JMP: please quantify what

JMP: please quantify what these 'Bush personal tax rates' are. If you mean the present situation wherein the very wealthy are getting extra tax relief to create jobs (but are instead parking their money, in some cases overseas even), I must respectfully disagree with you.

There is a clear need in this country to slow down and even close back (partially) the wealth gap that has widened too far in recent decades. IMHO.

You do realize that the

You do realize that the wealthy are not job creators. That's like saying the guy who puts the stripes in the parking lot created the cars. He's like other business, they only respond to demand.

And do what borrow more- tax

And do what borrow more- tax more and handcput money to non- producers like yourself that are desperate to live off the largresse of others that have value and have a sense of self- respect that refuses to let them exist on the charity of others - actually on the assets stolen from others. What fools.

ATLAS: You really love to


You really love to come here and broadcast your "I'm OK, so screw you" philosophy, don't you? What is wrong with millionaires and billionaires paying taxes at the same rate that their secretaries pay? You consider that "largesse?" The 1% have their wealth by the grace of the government, not because they're robber barons with their own private armies "in the kingdom by the sea. "

The super-rich breathe the same air and drink the same water as the hoi-polloi. They drive over the same roads and highways and fly in the same air-space. Why shouldn't they pay the same tax rate as workers to try to keep the air and water pure, and the roads and bridges safe to drive on? Why shouldn't they support, with their fair share of taxes, the ambulance drivers, fire-fighters, and the police and the courts? (The rich seem to get preferential treatment from the police and courts, anyway!)

Lower taxes on the super-rich never created more jobs. That's been a myth perpetuated by the extreme right that was long ago debunked. All it did was make the rich even richer, but I guess you think that's an ideal republic.

You'd probably only be happy if the rich had no tax rates at all. Isn't that it?
Yet the United States has the lowest income taxes of any advanced nation. You probably feel the same way about taxes as that Helmsley (?) woman, who said, "only the little people pay taxes." Right?

You accuse the Dems of being a "borrow-more and tax-more" party, yet for 8 years under W Bush the government consistently "charged" more debt than anyone else, and left it for the Dems to pay the bill. He even launched two unpaid wars while cutting taxes. You think that's great?

Who's really the fool, Atlas?

Is your "What fools" comment

Is your "What fools" comment directed at yourself? Because your comment certainly falls into that category.

Typical Reich! Always

Typical Reich! Always concerned with making everything better today only with no concern about the future. A guy with an economics PHD who actually thinks taxing the hell out of people and the government spending money wildly actually makes the economy stronger and creates jobs that will last.

Only the effort of entrepreneurs- risking capital and working to produce better and cheaper solutions to needs creates jobs that are orgnaically real and not fictional creations of just spending money inefficiently for some short period of time. What a fool!

Dear Atlas: The beneficial

Dear Atlas:

The beneficial aspect of your posting is that it reveals your vast ignorance of fiscal policy.

Treating macro-economics as if it were micro-economic is like confusing a bicycle with a hang-glider. You can jump off a cliff with both, but only one will allow you to soar high -- while the other will kill you.

The sole and only reason we have avoided the Greatest Depression is the few Keynesian programs which we have in place. It's like placing a giant safety net just below the cliff's rim to catch fools like you who insist that if you peddle fast enough, your bicycle will fly.

You really don't have a clue,

You really don't have a clue, do you? There's at least three trillion dollars being held by large businesses now, yet they're not hiring and just giving them more and more by taking it from the middle classes, the ones who actually keep our economy going, does othing except accelerate a downward spiral. DEMAND for products is what creates lasting jobs, not more tax cuts for the aleady rich- if there's no one with enough money to buy a company's products, then only a fool would hire people to build products that no one can buy, and wealthy business people didn't get rich by mindlessly throwing their hard-earned cash down the drain. Surely anyone can see that, if they actually think it through logically. Unfortunately, the critical thinking skills badly needed are rarely seen on blogs such as this one. So count yourself amongst those who don't bother to think through to the outcome of their economic magic!

Econ 101. Never took it but I

Econ 101. Never took it but I get it.

Finally, someone who

Finally, someone who understands macro-econ.

Is it too late to vote

Is it too late to vote Republicans out of Congress, starting with Boehner and McConnell? Thaqt is the only way I see to get us off this treadmill.

Wendy14- after reading the

Wendy14- after reading the two comments preceeding yours that were obviously written by people who not only don't understand economics (they just think that they do because they've put no real thought into their claims), your suggestion is actually the best so far! I'm glad to see that at least some haven't fallen for the myth that austerity is the way to go: we can see what that path has done for (to) the Eurozone. The UK was wise enough to not run with the uneducated mob, and it's fared far better that the nations on the continent. It can't be repeated enough that those who fail, or sinply refuse, to learn from history are doomed to repeat it.
Rates are low now because investors trust US T-bills, even when the interest earned on them isn't enough to keep up with inflation, so, yes, now is the time the Federal government to borrow more and spend more. If you have, for example, a mortgage that you're paying 7 to 8% on, but if you could put up several thousand dollars, borrowed at a far cheaper rate (pain now) and get your interest rate cut by 75 to 100%, wouldn't it be foolish not to do that? That is true conservatism as opposed to the faux 'conservatives' that are doing their best to cripple or destroy the US economy, all in a pursuit of power and wealth for themselves.

Again, it is a relief to see

Again, it is a relief to see someone who knows the facts and understands macro-econ.

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