Take it easy. Ease, easing makes it easier.
If they would have done those “easiest” things before, just by making things easier for (by bailing out) Lehman Bros and all those in the great line of fire back in the summer of September 2008, things would have been different today!
And now, that’s what the Fed actually is doing by instituting Episcopal policy of buying long-term debt which you may call “quantitative easing”. Perhaps, there are no other better options at hand and in practice. Get the economy moving, let the people borrow and set the platform where people unhoard cash and invest in productivity. Paying up such a great price for past indecisiveness!
One strange coincidence-sooner Greenspan left started the economic and financial firestorms!
Actually, this was what attempted by the Bank of Japan, quite unconventionally, but it did in fact some good job in the early 2000. And it was masterminded by the very same economist that we know today, Mr. Ben Bernenke, to whom we often entitle with adoration- Big Ben.
So, I am not much “optimistic” about those views and tell you why it might not work out in identical way, since; both are quite different economies; though they now seem to converge on a common theme- deflation trap. The commonalities are remarkably identical. Both Japan and the USA have ultra-low interest rates, both are not growing and both do not have any substantial inflation. Only, Japan scores better in employment and job creation, even in these hard times (Japanese unemployment rate @4.1%).
Rather, I am quite optimistically agreeable to Mr. Andrew Ross Sorkin’s ideas, a columnist of IHT who has quite fittingly noted that tax breaks wouldn’t help much. Let’s see why.
It is impulsively cheeky to conceive that tax breaks will help create new jobs. Betting on temporary tax cuts as a tool to combat unemployment and stimulate growth is not an ideal option anyway. That might primarily risk in tax revenue losses-which, the govt. is already losing money in all sides and from most corners (through bail-out programs)! But there is a compromise too. Well, this sounds tricky- as it would create an environment where every company would ask for tax breaks in future for a job- and in return, carving a niche to evade the radars of taxmen. Rather, what Obama administration has geared up for, say, pay-roll tax holidays to incentivize hiring? This sounds tricky too!
What a pity for the foreseers that would have them forced to observe this doomster side of the story- incentivizing employers to give employment. Well, not a bad idea, since, special programs have been underway as SEZ’s and as others’ in the emerging economies with great success-but not anything like this kind of horse-trading! The US govt. is in the line of begging jobs from the corporate sector for the sake of economic growth. What if even after such tax breaks they don’t hire quoting bleak business environment?
The sheer reality is; businesses tend to hire only when there is some business. And there is some business since there are demand for goods and services. And this “demand” comes from the consumers who opt to buy those services, and only when, they have enough discretionary savings (money and credit)!
So, I don’t see tax policy as a covenant tool to fight the malady of unemployment, yet, it is powerful enough to make the balance of statements go either way for other causes.
Back to the real story;
So, three things require get to be going “moved” if we really are to hope for some authentic change. First, inflation, and that would bring back growth(and with that if not jobs, then it would be terrible!), second, dynamicity in rates, and last but not the least of all, give a free hand to the Fed to use it’s interest rate choreographic tools and machineries to target inflation when that breaks the fence. To speak of, let’s talk about inflation hawks.
Those measures have seen rolling back the Japanese economy into growth path which foresaw a 25% rally in the Nikkei in 2003, the same year when Germany went into a recession. But things cooled off much faster, and in a much worst silhouette. When the world markets started to rally, the Japanese economy plunged back into a terrible stagflation from the beginning of 2007, and from which, it never regained which saw 3 Japanese Prime Ministers in and out of the game within a span of four years. Political chaos swapped economic doldrums. Who wants that in the long run- do you Mr. Krugman?
I think, Mr. Krugman might have perceived that those Fed announcements were rather awful.
So, the effect was rather transient and unsustainable. The reason I doubt what good would it do this time! Consider the scenario.
The strength, tenacity and resilience of the US economy seem to have disappeared. Even Big Ben’s rhetorical speech at the recently concluded annual Fed gathering at Jackson Hole failed to infuse renewed interests in the economy. Mr. Paul Krugman rightly embarked that the policy announcements are not in line and lacked substantive goals. The political as well as the economic ‘think tanks’ are thus struggling hard to envision an ideal economic policy path that may chart future growth prospects of the ailing economy plagued by uncertainty and despair. Some ideal growth-oriented policy shifts are required, and there is indeed urgency for that. Political opposition has almost crippled fiscal policy, according to great many policy makers. Markets are oscillating in a see-saw fashion, and volatility has become much trendy. Businesses are apprehensive of whether a repeat of 2008 is in the line. And job-holders are anxious about what appraisals would come in their way. While the East looks at the giant Western economy with few last hopes of any acts of extraordinary.
So, what has all this got to do with the job market? More Austerity measures- an easy answer. Note that Greece is already holed up austere ring!
With the scrambling economy and the uncertain macro-fundamentals, pink slips and layoffs are silently becoming symbolic these days. More than a dozen large banks in the United States have nearly lost faith in a growth rebound story told and retold many a times, and even with a historically low interest rates, bank lending has been depressed so far- a substantial source of bank revenue. Trading in volatile markets is expensive, and thus to maintain competitiveness, they have embarked on programs aimed at cutting operating costs and have emblematically announced layoffs as cost cutting initiatives that may further compound the problem of unemployment.
So, what did the Fed actually do to tackle the problem of fiscal melancholy? They are in fact going for quantitative easing policy. Can’t place a blame game here and above. They have indeed a very few policy options on balance. And measuring the efficacy of those is taking much time-precious enough to act on immediacy. But as Mr. Krugman has emphasized, Mr. Bernanke could have deviated from those orthodox measures which would have presented a different scenario had been he given enough freedom to embark on some unorthodox policies (say, PRP, or public reconstruction program-backed bond issuance- I would tell you, they would sell well as like China!). But something is holding on to that freedom- and which is almost killing the last few hopes of economic recovery, according to Mr. Krugman, and I really agree on this, and do thank him for such rhetoric expositions. But the reality of the fact is we cannot believe in what we see often; that this could ever have happened right in the US heartland- and that too ideally in the land of ultimate freedom as the Statue of Liberty stands aloft on the Liberty Island across the Manhatten.
Freedom of thinking, in actions and in policy making is what that is destined for every central bank established with those motives in place. And political firestorm and backlashes have cut down that freedom to act independently, and in demand as and when the situation calls for. This is not central banking- rather, eco-political despotism. The Fed, if given that independency could have unveiled new policies however unorthodox that might help lift the US economy from the ever depressing state of low demand and high unemployment.
As Prof. Krugman has mentioned, America is now very much in a Japan-like economic booby trap. I have also mentioned this a few days ago just before the Fed announcements. That the Fed has a lot of tools (stuffs), but most of them are limited in activity, except the great “FFR”. God knows when they will find their own righteous place (both Mr. Bernenke and his FFR).
· There are very few proponents of growth oriented policy practices and a great many opponents of those however; yet, there is hardly any promoter of economic stimulus thus so far...except Mr. Krugman.
Whoever had started the “tax-fire wall” back in 2004, they will require it to douse it someday or run for cover- I can only tell you this, not more. Better listen to Billy Joel’s oldies... “We didn’t start the fire...” and the debate will go on.
Keep reading.
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