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6/6/2011

Are officials too focused on sophisticated financial hocus pocus rather than sound economic principles in seeking to manage the state of affairs in the US economy?

Last week’s job report was particularly disappointing to economic realists.  The up-tick  to 9.1% of the unemployment rate with a pathetic increase in private sector job creation comes at a point which is well into a three year recession and follows extreme measures in stimulative policy over that same period.  An economic recovery you say?  Nonsense.  It is the content of these stimulative measures that is the focus of this weeks report.

QE1, QE2 has received sharp criticism around the globe as it is cited for injecting too much liquidity in the form of the creation of US$s, which may be resulting in commodity inflation and currency instability.  This policy of keeping interest rates artificially low through aggressive purchases of US debt is simply the main focus of so called experts to achieve a stimulative result in economic growth.  In reality however, this policy is simply an exercise in sophisticated financial smoke screening that is yielding little positive affect to the state of long term economic growth.  In fact, a strong argument can be made that it is increasing long term economic instability.

Shouldn’t policy makers focus more on traditionally sound economic principles to address the massive imbalances that exist today?  OF COURSE THEY SHOULD.  These sound principles should go back to the roots of economic fundamentals.  An economy deals with the establishment and preservation of a markets system and business entities which provide goods and services to consumers that choose allocations of their disposable income among those baskets of goods and services.  This economy also provides its residents with opportunities to earn wages to acquire disposable income.  In order to preserve this interrelated model, domestic economies must pursue policies which promote stability to the entire system.  What is transpiring now in the US is continued job destruction through globalization.

In order to address weak employment, consumption, currency instability, housing price declines and the like, policies that defend US workers jobs need to take top priority and this is simply not happening.  Sophisticated finance as a remedy?  It’ll keep things afloat for a while but in reality, it’s one of the reasons why bubbles have been created and economic instability is rampant right now.