On December 8, 2013, Martin S. Feldstein writes in The New York Times:
The Fed’s strategy has been to stimulate the economy by driving down long-term interest rates by amassing long-term bonds and pledging to keep short-term rates near zero. A result has been to increase home and stock prices and, by lifting household wealth, encourage consumer spending.
But the magnitude of the effect has been too small to raise economic growth to a healthy rate. Home building has increased rapidly, but from such a low level that its contribution to gross domestic product has been very small. And the increase in total consumer spending has slowed, despite the soaring stock market.
The net result is that the economy has been growing at an annual rate of less than 2 percent. (The latest estimate, that the economy grew at an annualized rate of 3.6 percent in the third quarter, overstates the strength of demand because half of that increase was just because of inventory accumulation.) Weak growth has also meant weak employment gains. The decline in unemployment, to 7 percent, as announced on Friday, has largely reflected the decreasing number of people looking for work. Total private-sector employment is actually less than it was six years ago.
While doing little to stimulate the economy, the Fed’s policy of low long-term interest rates has caused individuals and institutions to take excessive risks that could destabilize the economy just as it did before the 2007-9 recession. It has pushed up the values of everything from Iowa farmland to emerging-market bonds. Banks are lending to lower-quality commercial borrowers. Households are seeking higher returns by investing in real estate trusts and other high-risk products.
Although the Fed is expected to “taper” its bond buying, its promise to keep long-term interest rates abnormally low means that it is unwittingly encouraging private investors and institutions to continue to take risks.
There is no question that the Federal Reserve System needs to be reformed to act as a purveyor of economic growth.
Influential economists and business leaders, as well as political leaders, should read Harold Moulton’s The Formation Of Capital, in which he argues that it makes no sense to finance new productive capital out of past savings. Instead, economic growth should be financed out of future earnings (savings), and provide that every citizen become an owner. The Federal Reserve, which has been largely responsible for the powerlessness of most American citizens, should set an example for all the central banks in the world. Chairman Benjamin Bernanke and other members of the Federal Reserve need to wake-up and implement Section 13 paragraph 2, which directs the Federal Reserve to create credit for local banks to make loans where there isn’t enough savings in the system to finance economic growth. We should not destroy the Federal Reserve or make it a political extension of the Treasury Department, but instead reform it so that the American citizens in each of the 12 Federal Reserve Regions become the owners. The result will be that money power will flow from the bottom up, not from the top down––not for consumer credit, not for credit that doesn’t pay for itself or non-productive uses of credit, but for credit for productive uses to expand the economy’s rate of growth.
What is needed is to implement the Capital Homestead Act. (http://foreconomicjustice.org/?p=8942)
Right now the Federal Reserve creates money by loaning it to banks, who re-loan it multiple times because of fractional banking rules. With Capital Homesteading, money would be created by loaning it directly to citizens via banks at near-zero interest to invest in FUTURE wealth-creating, income-generating (full dividend payout) productive capital assets formed by producer companies. To build real wealth and also phase out our near-defunct social security scheme, the new full-reserve money would go into a long-term retirement account to be invested in dividend-paying, asset-backed shares of corporations. That way, money power would be spread to all citizens. The middle class would be invigorated using the principle of compounding interest, instead of being decimated by mushrooming public and personal debt.
The Federal Reserve could play a more positive role, removing artificial barriers to equal citizen access to acquiring and owning productive capital wealth. By creating asset-backed money for production, supported by growth-oriented tax policies, the Federal Reserve could truly help promote shared prosperity in a market system.
Support the Agenda of The Just Third Way Movement at http://foreconomicjustice.org/?p=5797
Support Monetary Justice at http://capitalhomestead.org/page/monetary-justice
Support the Capital Homestead Act at http://www.cesj.org/homestead/index.htm and http://www.cesj.org/homestead/summary-cha.htm
http://www.nytimes.com/2013/12/09/opinion/saving-the-fed-from-itself.html?_r=4&
