Wanted: Fed Policy Focused on Jobs for Americans Instead of Profits for Banks
File photo shows members of the media reflected in the glass at the entrance to the JPMorgan Chase global headquarters on Park Avenue in New York pictured July 13, 2012
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There is a prevailing, politically expedient myth that the Fed’s bond purchase programs are somehow akin to job fairs; as if there’s an economic umbilical cord stretching from a mortgage-backed security lying on the Fed’s books to a decent job becoming available in the heart of America. Yet, since the Fed began its unprecedented zero-interest rate and multi-trillion dollar bond-buying policies - the real beneficiaries have been the Big Six banks (that hold more than $500 billion of assets): JPM Chase, Bank of America, Citigroup, Wells Fargo, Goldman Sachs and Morgan Stanley.
The Big Six banks’ stock prices have outperformed the Dow’s rise by a factor of more than TEN times, since early 2009. Moreover, low to zero percent interest rates on citizens’ savings accounts have catalyzed depositors, pensions, and mutual funds to buy more stocks to make up for low returns on bonds and money market instruments, further buoying the stock market.
Quantitative Easing ‘QE’ entails buying bonds, not creating jobs
No matter how many articles and politicians claim the Fed is buying Treasury and mortgage-backed securities (MBS) to help the a) economy or b) unemployed, it isn’t true.
According to the Economic Policy Institute “the unemployment rate is vastly understating weakness in today’s labor market.” True, the official unemployment rate (called ‘U-3’ on the Bureau of Labor Statistics reports) has inched downward from a high of 10% in early 2009 to 7%. But, that’s because people have dropped out of the hunt for jobs. The number of these ‘ workers’ as EPI calls them, has risen with the stock market’s rise; that’s not a sign of a healthier employment situation.
If those workers were still ‘participating’ in the employment-seeking crowd, the adjusted U-3 unemployment rate would have hovered between 10 and 11.8% since early 2009. It is currently at 10.3%. In other words, it’s still pretty damn high.
And that’s a more conservative estimate of unemployment than places like John Williams’ Shadowstats computes, which pegs the unemployment rate at Great Depression levels of just below 23%.
(The BLS’s estimate of the U-6 unemployment rate, which includes people who have briefly stopped looking (short-term discouraged or marginally attached workers) or found part-time rather than full time jobs, is at 13.2%. It has declined along with the official U-3 estimate, but does not account for the “missing” 5.7 million workers, either. Plus, the BLS long-term jobless figures have remained steady around 4 million people.)
Happy Hundredth Birthday Fed! (Bank to the bankers, not the people)
As I explore in greater detail in my upcoming book, All the Presidents’ Bankers, the Fed wasn’t created in the wake of the Panic of 1907 to help people find jobs. It was created to provide bankers a backstop to the pitfalls of risky bets gone wrong, and propel the US to a financial superpower position competitive with major European banks via supporting the US dollar.
As per its official summary in the Federal Reserve Act of 1913 (approaching its century anniversary on December 23, 2013), the Federal Reserve was formed to “provide for the establishment of Federal Reserve banks, to furnish an elastic currency, to afford means of rediscounting commercial paper, to establish a more effective supervision of banking in the United States, and for other purposes.”
Besides, if the Fed really wanted to make a dent in unemployment today, it could have spent the nearly $1.4 trillion it used to buy MBS to create 14 million jobs paying $100K or 28 million jobs paying $50k, or funded the small businesses that the big banks are not. Equating QE with employment illogically equates offering the biggest banks a dumping ground for their securities with middle and lower class prosperity.