Politic365

 
 


Policy

5:25pm March 4, 2013

The March Madness of Monetary Policy

mon

As basketball fans gear up for March Madness, the blood sport of fiscal politics promises no less excitement over the next few weeks. Not only is there a government shutdown deadline on the horizon for March 27th, but the U.S. Department of Labor’s jobs situation report and the Federal Reserve flow of funds report due out on March 7 should provide further perspective on the impact that monetary policy is having on employment in the black community.

The opening act to this coming Friday’s reports may come out of the House Sub-committee on Monetary Policy and Trade.   The sub-committee has a hearing on 5 March 2013 where it will address the effectiveness of the Federal Reserve’s zero interest rate policy.  Since December 2007, the federal funds rate, the rate at which commercial banks lend overnight funds to other banks, has fallen from 4.24% to .14% or a decrease of 96.7% according to data from the Federal Reserve.  The Federal Reserve has been engaged in a policy of lowering the target for the federal funds rate, primarily through its purchase of shorter and longer termed agency backed U.S. Treasuries as well as other asset or mortgage backed securities with the intent of keeping long term borrowing rates low throughout the entire financial system.  By keeping rates low, the Federal Reserve hoped to address the nation’s stubbornly high rate of unemployment by stimulating  loans to businesses.

Based solely on the level of black American unemployment hiring, the Federal Reserve’s monetary policy is open to debate.  While the Federal Funds rate has decreased almost 100% since December 2007, the unemployment rate for black Americans has increased 53.3% over the same period.  The unemployment rate, while peaking at 16.8% in March 2010, is not expected to return to single digits in the near future.  It is particularly telling that The March 2010 peak occurred one year after stock prices began their four-year bull rally.

But while Wall Street may be pleased overall with the four-year rally, it has been concerned with the amount of liquid assets U.S. corporations have been hoarding on their balance sheets.  According to the Federal Reserve’s flow of funds report, non-financial corporate liquid assets increased from $1.385 trillion at the end of 2008 to $1.737 trillion at the end of the third quarter 2012.  To some analysts and commentators, these funds represent lost investment opportunities in the United States particularly in the area of new hiring.  Stubbornly high unemployment, shaky consumer confidence, and low rates of return as reflected in interest rates may be to blame for so much cash and other liquid assets sitting on the sideline and not being leveraged.

While concerned about the high level of unemployment in the minority community, U.S. Representative Maxine Waters, Democrat of California, and ranking member of the House Committee on Financial Services, has been relatively upbeat about the Federal Reserve’s initiatives for stabilizing and growing the economy.  Mrs. Waters, who also serves on the monetary and trade policy sub-committee as an ex-officio member, has championed the Federal Reserve’s purchase of mortgage-backed securities.

In an op-ed for The Huffington Post last fall, Mrs. Waters said that, “[t]he practical explanation, the explanation that will matter to the 12.5 million Americans who are currently unemployed, is that the Fed decided that it needs to do more to reduce unemployment, and that it is going to use the tools at its disposal to help Americans to get back to work.”  Mrs. Waters added that, ” … by engaging in this next round of quantitative easing, and by committing to further actions until the labor market improves substantially, the Fed anticipates that it can lower interest rates, help shore up the housing market, and improve business conditions for investment. The announcement that the Fed expects to maintain the Federal Funds rate to stay below a quarter of one percent until mid-2015 should also have a positive impact on the economy.”

Mrs. Waters’ fellow committee members may have different conclusions this week should there be no change in unemployment as the Federal Reserve continues its securities purchase program while fed funds rates stay at zero.  And as Washington deliberates, the madness for the unemployed continues.



About the Author

Alton Drew
Alton Drew provides advocacy, legal and legislative analysis, and legislative monitoring services for not-for-profit associations and foundations with a particular emphasis on broadband adoption, spectrum, and local community development. Using various social media platforms, Mr. Drew amplifies messages for not-for-profit associations and foundations as part of their online media campaigns. Follow him on Twitter @altondrew; Facebook at http://www.facebook.com/alton.drew.5; or visit him at www.lawandpoliticsofbroadband.com or www.lawandpoliticsofcapital.com.




 
 

 
Current_2008_US_Electoral_College_Polling_Map

National Popular Vote gains momentum with New York joining the interstate compact

On Tuesday, April 15, the state of New York joined the National Popular Vote interstate compact after Governor Andrew Cuomo signed the National Popular Vote bill. The National Popular Vote would make it so that the voting publi...
by Adriana Maestas
0

 
 
7029981403_52dc523d79_b

8 Million Sign-ups: Obamacare enrollments exceed expectations

Yesterday President Obama announced that sign-ups for the Affordable Care Act, his signature piece of legislation have hit eight million. While the official enrollment period ended on March 31, the government allowed people to ...
by Adriana Maestas
0

 
 
deacon1

Innocent Man Who Was in Jail for 25 Years Sues New York for $25 Million

Another week, another story about someone who was in jail for decades who was innocent.  This time it’s Derrick Deacon of Brooklyn, New York.  Deacon was in jail for 25 years when, whoops,  someone finally figured out ...
by Lauren Victoria Burke
0

 

Advertisement
 
scott-booker

What Partisan Gridlock? Sens. Cory Booker and Tim Scott Join on LEAP Act

In an era of partisan gridlock two senators from opposing parties have come together with legislation aimed at putting Americans back to work. It becomes more noteworthy that the two senators are the only African-Americans in t...
by Ray Baker
0

 
 
Georgians Go To The Polls During Early Voting Before General Election

Election 2014: Georgia 1+2+3 = Modern Voting Rights Movement #GA123

Last week I participated in #GA123 — one of the most cutting edge civic engagement events this election cycle. This “cross-platform” social media conference attracted over a hundred political leaders from the southeas...
by Kirk Clay
2

 




One Comment



Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>