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 acquisition, and capital accumulation. 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.




 
 

 
6316413344_309861dd7d_b

Senate passes bill expanding drug war with Transnational Drug Trafficking Act

On Monday, the Senate passed the Transnational Drug Trafficking Act, which expands the war on drugs. This law gives the Justice Department the authority to prosecute drug traffickers from foreign countries. The law also ensures...
by Adriana Maestas
1

 
 
193624822_de6bb92462_z

Government funding bill with Wall Street giveaways passes in House

On Thursday night, the House of Representatives voted to pass a government funding bill, but some of the more progressive members of the House stood in opposition to this spending bill because it contained policy riders that be...
by Adriana Maestas
1

 
 
5708625905_502f6d8f08_b

Latino support for President Obama up, and majority of Americans still support path to legalization

The Pew Research Center for the People and the Press released some new data today from a recently conducted survey that shows a mixed response from the public for the President’s recent executive action expanding the numb...
by Adriana Maestas
0

 

Advertisement
 
4bill

Four Ferguson Related Bills in Congress

Four Ferguson Related Bills in Congress. This week will likely be the last week of the 113th Congress. When Congress reconvenes again in January, Republicans will control both the House and the Senate. But the last week of a C...
by Lauren Victoria Burke
1

 
 
eric3

First #Ferguson Bill Set to Become Law: Deaths in Custody Reporting Act

First Piece of #Ferguson Related Legislation Passes Congress and Will Become Law. H.R. 1447, the Death in Custody Reporting Act, authored by Rep. Bobby Scott (D-VA), passed the Senate (Wednesday) tonight and is on its way to be...
by Lauren Victoria Burke
1

 




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>