By Betsy Ross
Oh, what to do about unemployment?
Try as it might to pump money into the economy and spur hiring, the Fed's policy ain't working. Don't blame Keynes. For the stim to be effective, the cash needs to get to small businesses: the primary source of jobs in our country. Trouble is, the Fed's counting on banks to circulate the extraordinarily low interest rate money it's spouting.
The banks are hoarding the dough. In a recent New York Times article, Richard H. Clarida, a Columbia University economist, confirms that "bank lending, much of it to small and medium-size enterprises, has collapsed to an extent unprecedented in previous business cycles and continues to decline more than a year into recovery."
As a small business owner myself, I can vouch for that.
Rather than take steps to ease the blockage, Fed Chair Ben S. Bernanke's answer is to shove even more cash into our bloated system, as if making economic foie gras. (It kind of puts a new twist on the pejorative "pig".) On October 19 th , Times reporter Sewell Chan wrote that the Fed is adopting a "radical" move to lower long-term interest rates in a desperate attempt to foster employment. These moves echo Bush era policies that hyped the economy with a potent combo of low interest rates and easy credit. But there's no easy credit -- in fact, far from it.
Now, don't get me wrong. I'm not touting a return to the giddy nitwit days of Bush-era impulse lending. What I'd like to see is prudent lending conducted by banks interested in economic development and capable of assessing and pricing risks. That's how it was before Clinton, late in his second term, got rid of the Glass-Steagall Act, which had successfully controlled speculation. (Clinton acted on the advice of Lawrence Summers, who just returned to Harvard after misdirecting Obama for two critical years.)
Thereafter, banks of all sizes traded long-established disciplines tied to local lending for fast profits and wanton practices. I was shocked to learn that even our seemingly staid little local bank had waded into exotic risks it barely understood, requiring a TARP bailout of over $100 million from us taxpayers.