Wednesday, October 20, 2010

Reich: Fed Creating a New Bubble

I am off to volunteer some time to Hanabusa for Congress. But before I go, just a quick reference to a recent post by Robert Reich, where he argues that the Fed's decision to pump more money into the economy, and thus keep interest rates low, and therefore spur on the economy, will be ineffective. He gives a variety of reasons, but the upshot is that there is no productive place for the money to go. Banks could lend, and that was the original idea, but they are supposed to be following stricter standards, yes? So no loans for you, bub.

It needs to go to higher wages, but as obvious as that may seem, no one in power wants to push the idea, certainly not corporations, Republicans, or the investor class. And government mechanisms to make that happen are utterly inchoate. Compare that with the speed with which TARP was enacted, or tax breaks for hedge fund managers.

So, as Reich reminds us, the money ends up in the stock market, which helps explain why the Dow has gone up so much recently, despite poor economic indicators. The investor class is in the process of creating a new financial bubble.


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