The Federal Government Looks Frozen for 2010

Posted by Michael A. Kamperman on January 16, 2010

The Wall Street Journal is reporting the Federal Reserve plans to let most of their emergency measures expire as scheduled during the next two months.  The Federal Reserve will remove guarantees for money market funds on February 1.  They will also no longer make emergency loans to businesses that are having trouble accessing the commercial paper market.  Most significantly, they will stop purchasing federal agency paper and mortgages at the end of March as scheduled.  They will leave interest rates near zero until the economy demonstrates it has improved, and that the improvement is sustainable.  Basically, the Fed plans to hide and watch for the remainder of 2010.  Surprisingly, the Fed acknowledges that unemployment will probably remain stubbornly high for the foreseeable future.  Yet there is a belief by the majority of Fed Governors that they have done enough and there is not much more they can do for the economy. 

 

Balderdash!  The Federal Reserve is charged with both price stability and full employment.  By tacitly acknowledging we have an employment problem, but not using more of the tools at their disposal, the Fed is throwing in the Keynesian towel and adopting the creative destruction concepts of the Austrian School of Economics.  If Ben Bernanke cannot move the Federal Reserve Board to fulfill its mandate, then he should not be confirmed to a second term.  In a war, if you’re not winning, you fire the generals and bring in leaders who are willing to be more aggressive.  Just because the Fed has done more than they ever have before doesn’t mean they have done enough, nor all that they can.  Haiti is an example of an overwhelming crisis that requires a much bigger effort than what has been put forward so far.  It doesn’t matter that what we are sending is more than we have ever sent to an island nation.  It only matters that we do the job required of us to save those people, especially since we have the resources to do it sitting on U.S. bases.  Like Haiti, the scale of our economic collapse is beyond the experience and the ability of our current economic rescue team to handle.

 

The Federal Reserve is now looking to the Whitehouse and the Congress to solve the economic Rubik’s Cube of finding a way out of the economic mess we find ourselves in.  Unfortunately, massive quantitative easing is a big part of the way out and the Fed controls that.  Doubly unfortunate is the fact that the Whitehouse and the Congress appear to be like deer in the economic headlights.  Whatever came of the President’s job summit?  Should Brown win in Massachusetts on Tuesday, then we could have gridlock right up until the mid-term elections in November.  Even if the Democrat Coakley pulls it out, a near miss will call for recalibration.  The situation in Haiti has clarified for me the problem with finding a solution.  CNN reported that U.N. doctors left 25 patients in a field hospital unattended at night because of security fears.  Yet CNN’s correspondent Dr. Sanjay Gupta, a hero, was able and willing to stay with the patients through the night to give them the best chance at survival.  Because of his heroics all of the patients lived through the night.  The command and control structure for the Haitian rescue mission is disjointed and broken.  No one is really in charge and chaos reigns.  The same problem has happened with the federal government’s response to the economic crisis.  No one is in charge and no one is willing to be a hero.  Everyone wants to stay with protocol and not stray to far from the orthodoxy.  Therefore, they can always claim they did all they could and it wasn’t their fault. We need to throw caution to the wind and place a U.S. General in charge of the entire Haitian rescue operation, protocol be damned, and give that person full authority with unlimited resources to get the job done.  Likewise, we need the President to use his existing authority to take ownership for providing a solution to the economic crisis.  Instead, all we have now is bickering and debate and minimal efforts that are too meager to be effective.