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OpEdNews Op Eds    H2'ed 10/17/15

Quantitative Easing Was a Bust; Let's Try Higher Wages Instead

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Mike Whitney
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Keep in mind, the Fed's policies come at a high price too. As we said earlier, the Fed's balance sheet has ballooned to over $4 trillion dollars. So ask yourself this: How do the service payments on that $4 trillion debt impact economic growth?

Obviously, the service payments drain resources away from the real economy. Let's use an example: Joe Blow decides he doesn't want to live in his ramshackle $500 per month basement hovel on Capital Hill anymore, so he moves to a beautiful two bedroom apartment in Madison Park overlooking Lake Washington for a whopping $2,200 per month. So, now Mr. Blow has $1,700 less per month to spend on nights-on-the-town or exotic LARPing adventures in Port Orchard with his computer-geek friends. What impact will Joe's new arrangement have on the economy?

It will hurt the economy because less spending means less growth. And that same rule applies to the corporations that borrowed money to repurchase their own shares. The billions in debt servicing will be diverted away from the real economy where it would have done some good. This is why the big Wall Street banks should have been euthanized following the Crash of '08, so their debts could have been wiped out instead of transferred to the Fed's balance sheet where they are a constant drag on growth.

The global economy faces so many headwinds at present that it's hard to know where to begin. China's real estate bubble has popped, capital flight has put emerging markets into a nosedive, commodities prices have plunged triggering fears of deflation, the economic data is increasingly bleak, and the Fed's plan to "normalize" rates has sent stocks gyrating like never before.

Even so, economic policy should focus on the things that increase growth, boost demand and lead to a more evenly-shared prosperity. Full employment and solid wages gains should be on top of the list. Those are the foundation blocks for a strong economy that can withstand the ups-and-downs of an erratic business cycle or the periodic battering of financial crises.

We tried QE, now let's try higher wages.

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Mike is a freelance writer living in Washington state.

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