Chicago Fed: 'Big stimulus is appropriate'
Chicago Fed president Charles Evans says that without stimulus there is little hope of 'mitigating the losses in jobs and output.'
Last Updated: January 3, 2009: 6:51 PM ET
SAN FRANCISCO (Reuters) -- The Federal Reserve's new lending programs should help cushion the impact of the year-old U.S. recession but a large traditional fiscal stimulus plan is also needed, a top Fed policy-maker said Saturday.
"We expect large amounts of more traditional types of fiscal stimulus to increase aggregate demand. I believe a big stimulus is appropriate," said Charles Evans, president of the Chicago Federal Reserve Bank.
A year into the recession, the U.S. jobless rate appears on pace to exceed 8% in 2009, Evans said in remarks to the American Social Sciences Association meeting in San Francisco, noting that many non-financial industries face the risk of "long-term structural impairment."
In November, the jobless rate was 6.7%.
Without the Fed's series of moves to help unfreeze credit markets and cut official interest rates to the bone, "the downturn -- and its costs to society -- would be even more severe than what we are currently facing," said Evans, who is a voting member of the policy-setting Federal Open Market Committee in 2009.
Since the financial market crisis erupted, the Fed has created several new programs aimed at bypassing the traditional banking system and smashing through the credit-market logjam, including the direct purchase of mortgage-backed securities.
With the Fed holding down the monetary policy aspect of the equation, Evans said similarly aggressive actions are needed on the fiscal side to shore up the economy.
"Since most economic forecasters envision the current downturn as rivaling the deep recessions of 1974-75 and 1981-85, I think these fiscal programs must be large in order to be effective and to instill badly needed confidence," he said.
President-elect Barack Obama has said that signing a major economic stimulus package will be his first priority when he takes office on Jan. 20, with a goal of creating 3 million jobs over two years.
Evans said the Fed will be increasing its nontraditional policies further now that the federal funds rate, its traditional tool to influence economic growth, has been cut to almost zero, in a reference to the "quantitative easing" measures taken by the central bank recently.
"We are faced with the challenge of calibrating these unfamiliar policies and, in the future, determining the appropriate time and methods for winding them down," he said.
Evans also said the market crisis that erupted in 2007 showed huge holes in financial regulation.
"Significant weaknesses have been revealed in our system of financial regulation. ... These failures call for a reassessment of the roles of market discipline and our regulatory structures," he said
Many of the Fed's moves have been done on the fly in response to "emerging distress," and the central bank must do a better job communicating its motives to the public, Evans said.
"In a complex and dynamic environment, the public needs effective and transparent communications. As our lending facilities and other policy responses continue to evolve, this is a daunting task," he said. "We should strive to do more."
Let me ask again, are there any adults left? Here’s a voting member of the Fed who simply does not understand how we got to where we are and he certainly does NOT understand the ramifications of his actions. In fact, it appears that understanding history or basic economics is a DISQUALIFIER for working at the Fed!
“…I think these fiscal programs must be large in order to be effective and to instill badly needed confidence," he said.” Oh, really? From my perspective, what the Fed is doing is destroying not only the confidence in the system, but they are destroying the underlying math - Death by Numbers.
“Evans said the Fed will be increasing its nontraditional policies further now that the federal funds rate, its traditional tool to influence economic growth, has been cut to almost zero, in a reference to the ‘quantitative easing’ measures taken by the central bank recently.” Oh really? Has anybody or any country ever become wealthy by printing money (My MONEY 'tis to thee...)?
And this is the statement that just pisses me off to no end, “In a complex and dynamic environment, the public needs effective and transparent communications. As our lending facilities and other policy responses continue to evolve, this is a daunting task,’ he said. ‘We should strive to do more.’” Once again, they are taking simple problems (too much debt already) and obscuring them with words like “complex” and “dynamic” while they claim to be working towards TRANSPARENCY. How can these clowns even say that with a straight face? Bloomberg and Fox News have filed lawsuits just to try to find out who is on the receiving end of our taxpayer money handouts, and it is THEM who refuse!
But we know why they are playing this game! The truth is that ALL the large financial institutions are INSOLVENT if forced to expose their true holdings. They all overleveraged beyond belief, JPM being the epicenter of the black hole. And remember, that the Federal Banking system is really not Federal at all – it’s private. These people at the Fed, Paulson especially, came from this private system and they are still working for IT, not for US. They are still in process of the greatest heist and Ponzi scheme in the history of mankind and they are trying to perpetuate the illusion at least until they can exit.
So, either Charles Evans is complicit, or he is simply naïve beyond belief.
Seriously, Does Anyfed in Chicago Really Know What Time it is?