Jobs, Quantitative Easing and a Capital Strike

Americans elected a Republican House because Democrats let them down, especially on creating jobs. Yet, Republicans think you can make more jobs by radically cutting Government spending, especially for the poor. That hasn't worked for the Tories in Britain, and it makes no sense: there is too little demand for new jobs, already; cutting spending reduces the demand further.

The absence of a strong fiscal policy is at the heart of the problem.

Bernanke began the Fed's Quantitative Easing II (QE 2) as a monetary substitute for the stimulus and job creation the Government should have been doing; QE2 will be completed in June. The Fed will have injected $600 billion in new money into the economy, but unemployment is only slightly lower. The more direct effects are: the stock market has been toying with a 13,000 Dow, and corporations have been meeting and beating profit expectations. The flood of money helped drive gold and silver to historic highs, oil to over $113/barrel; food and other commodity prices are soaring.

QE2 may have driven some of these price hikes through speculation, but hiring was only weakly boosted, and with QE2 ending soon, official unemployment is only a shade under 9%.

The Fed could face a capital strike if it attempted more. It's maintaining interest rates at historic lows, and Bernanke claims inflation will remain low, or even go lower. With S&P threatening to downgrade US debt ratings, with the Street clamoring against monetizing the debt, and Paul Ryan chairing the House Budget Committee, the Fed is unlikely to do more.

QE2 could only accomplish so much, anyway. Bernanke implied at its inception that he preferred a rational Government fiscal policy. QE2 was adopted because it was unlikely Obama and House Republicans would be able to reach an agreement to stimulate the economy.

Instead, we face stalemate. Radical Republicans demand the cuts outlined by Congressman Ryan and more. Speaker Boehner already faced difficulty corralling votes for the 2011 budget compromise. Democrats know they'll lose their base if they cave further to Republican demands. What is needed is what Obama and the Democrats didn't have the courage, or votes in the Senate, to push through in 2009-10: a real jobs bill, and a real takeover of the housing mortgage mess.

Will we hang on until 2013? With no jobs program, only the payroll tax stimulus, and housing markets falling further? Would corporations hire more, with falling demand for goods? Would banks resolve their mortgage mess: admit their fraud and losses? Dream on!

A deadlock on the debt could slam us into a Depression, and a likely Republican takeover. They favor putting corporations in control, much like the monopoly of power held by the Senatorial class of the late Roman Empire. Americans would be reduced to surplus labor, competing with low-wage workers worldwide.

Maybe we'll get bread and circuses?