Hearts and minds leapt upward on Wall Street when the Federal Reserve announced its new effort to revive the sodden economy. Print more money, buy more financial assets—billions and billions of mortgage-backed securities or Treasury bonds. The Dow jumped 206 points on the news. Major media described the event as bold and significant. Maybe, maybe not.
A sweet day for the financial traders does not necessarily translate into good news for Joe Sixpack. Indeed, the story of this troubled era is that what wins for the suits may very well produce opposite result for ordinary folks. What the news stories generally overlooked is that the central bank has already tried this remedy a couple of times and it failed to jump-start action in the real economy, where most Americans toil.
The Fed’s “new” commitment is to buy another $40 billlion in financial assets every month until the economy really does look reinvigorated. In two previous efforts, the central bank tripled the size of its own holdings and accumulated as much as $2.7 trillion in similar buying sprees. The stock market perked up, but not the national economy. In fact, the economic engine has slowed to a crawl during the last year despite the Fed’s earnest efforts.
As I read the Fed’s latest pronouncements, I am impressed by the words, not the numbers. Chairman Ben Bernanke is expressing sincere alarm at the “weak job market” and urging every other governing institution, from the White House to Congress, to take it more seriously. The Fed will stay on the case, he promised, even if its monetary interventions are “no panacea.” When the conservative Federal Reserve chairman worries aloud about stubbornly high unemployment and identifies joblessness as the gravest threat facing the economy, we can be sure this crisis is real.
Alas, most political leaders are not listening. The grumpy Republicans attack Bernanke for meddling in their affairs. Mitt Romney proposes to do nothing to make things better. Let nature takes its course until the bloodletting is exhausted and Barack Obama is out of the White House. The president did propose a jobs bill last year, but too little, too late. Everyone knew the Republicans would block passage, and they did.
Bernanke and colleagues know this is rubbish (so do most Americans). Some central bankers can glimpse the outlines of larger crisis looming over us—a global meltdown of historic proportions if nothing is done to prevent it. If the Fed’s latest efforts fail, as I fear they will, the central bankers will try something else. Bernanke promises they will.