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OpEdNews Op Eds    H3'ed 12/28/15

What Should The Federal Reserve Do To Stimulate The Economy And Abate Economic Inequality?

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The Federal Reserve raised its main interest funds rate by one-quarter of a point, signaling confidence that the economy has finally recovered from the 2008 financial crisis.

The move, announced on December 16, 2015 in a statement from the Federal Open Market Committee, was widely expected and marks the first time the central bank has raised the funds rate in almost 10 years. The funds rate is the principal lever for controlling interest rates that borrowers pay. The Federal Reserve cut the rate almost to zero at the height of crisis to spur an economic recovery, the result of which as been anemic for the vast majority of Americans, but has bolstered the capital OWNERSHIP portfolios of the already wealthy OWNERSHIP class.

The Federal Reserve raised its key interest rate in order to demonstrate its confidence in the U.S. recovery. Committee officials are expecting the U.S. economy to grow by 2.4 percent in 2016, according to the Federal Reserve's forecast released after the announcement. The "official" unemployment rate is expected to level off at 4.7 percent over the next three years. The underlying support for the main interest rate increase is strengthening economic indicators, namely the increasing job growth, albeit mostly low-wage jobs.

It is, however, a misrepresentation, based on questionable economic indicators, that the economy is healthy and has escaped from the "Great Recession." Raising the Federal Reserve's main interest rate from near zero to, well, just above zero at 0.25 percent is not a solution to ANYTHING. The economy will continue to head toward the ultimate wreck resulting in significantly expanded wealth inequality at the expense of ordinary citizens who are struggling as wage slaves, welfare slaves, charity slaves and consumer debt slaves with no meaningful savings or the ability to save and invest. Anyone who believes that the economy is robust with a 2.4 percent annual growth expectation does not understand what the real potential is. Any growth under 10 percent is anemic.

To date, the Federal Reserve's near-zero interest rates have boosted stock (OWNERSHIP participation) speculation for those qualifying for low-cost capital credit and boosted stock prices. The wealthy OWNERSHIP class has been able to buy back stock and further concentrate their OWNERSHIP of corporations. That's IT!

The bond-buying spree over the past six years now poses the challenge for the Federal Reserve to dispose of the assets on its bloated balance sheet -- more than four times larger than when the bond buying began. How much has the balance sheet grown? When the Great Recession hit, the Federal Reserve's balance sheet was approximately $700 billion dollars, and over the course of the recession and recovery, the asset purchases the central bank made through its various quantitative easing programs expanded the balance sheet to over $4.4 trillion. Note: "quantitative easing" is a monetary policy in which a central bank purchases government securities (bonds or other debt) or other securities from the market exchanges in order to lower interest rates and increase the money supply. Quantitative easing increases the money supply by flooding financial institutions with money in an effort to promote increased lending and liquidity to meet financial obligations.

There is very little to show for the Federal Reserve lowering the benchmark interest rate (near zero). While borrowing costs have been lowered to create an incentive for business corporations to expand, what expansion resulted has not really benefited the vast majority of American citizens, who are seeing jobs exported to foreign countries whose economies are being boosted by American corporation investment in productive plant and machinery instead of making investments in productive plant and machinery in the United States. That coupled with the continual impact of technological progress is steadily eliminating well-paying jobs in manufacturing and devaluing the worth of labor, leaving what job prospects remain in the low-pay service industries. As a result income inequality is constantly the result as the divide between the wealthy OWNERSHIP class and the wage serfs and property-less widen.

Without a populous with earnings to create demand for products and services, there will not be any significant private sector investment in the growth of the economy. Yet, according to an articled entitled "Fed Hikes Interest Rates" by Jon Prior and Ben White on Politico, "growing numbers of Wall Street analysts now believe that the gentle hike of just a quarter of a percentage point will not be necessarily bad news for markets, and could even provide a short-term stimulus if businesses are inspired to invest in new equipment now rather than wait for higher rates in the future." But "markets" are ALL secondary, as they are comprised of assets (stocks, bonds and securities) already OWNED, which are then bought and sold among an already wealthy OWNERSHIP class.Markets have nothing to do with the REAL economy -- the formation of actual capital assets necessary to productivity growth.

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Gary Reber is a leading advocate for economic justice. He is the founder and Executive Director of For Economic Justice (, and an advocate and author for economic justice through broadened ownership of wealth-creating, (more...)

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