Wednesday, January 15, 2014

Stay the course until economy fully recovers

    On Jan. 6, 2014, the first time in its 100-year history, the Federal Reserve Bank (the Fed), named a woman to serve as its chair. If Janet Yellen solves the inherent conflict between the threats posed by un-employment and inflation by listening to her better angels, she will set a positive tone for the U.S. economy and may well put the nation on track to a full recovery, instead of the tepid stops and starts it has experienced for the last six years.
    Yellen takes over at a delicate and dan-gerous moment. As The New York Times noted. “As a Fed official, Ms. Yellen, 67, has been an influential proponent of the Fed’s extraordinary measures to revive the economy, even though interest rates are already close to zero.”
    Now is the very time, however, that the Fed needs to double down on its emphasis on growth and employment rather than be concerned with inflation and debt.
    Strong voices argue that the nation’s unemployment rate is no longer a concern. At the height of the Great Recession, there were seven applicants for every job. The shortfall in opportunities is now estimated at three applicants for every available job. The stock market has seen a year of spec-tacular returns.     All of this has been sup-ported by the Fed’s aggressive monetary policy. What Yellen must continue to rec-ognize, however, is that these improve-ments have come despite and not because of cutbacks in government spending.
    Insistent voices, particularly in the House of Representatives, have been far more concerned with debt than with grow-ing the economy. Proponents of this view fail to notice that the last time the United States paid off the national debt was not during the Ronald Reagan administration, nor those of Kennedy, McKinley, Coolidge or Hoover. A debt-free United States goes all the way back to President Andrew Jackson.
    Jackson, dogged by private experi-ences, cut spending, including government jobs, until the national debt, incurred since America first borrowed to obtain its independence, was reduced to zero. Six years of the worst depression in America’s history resulted from his obsession.
    Yellen has inherited a Congress largely unwilling to fight off deflation and unem-ployment, choosing instead to worry about inflation and the debt. Her appointment was achieved by the narrowest margin ever for that position.
    The new Federal Reserve chairman has significant influence and it appears Yellen has both the experience and the instincts to help the country continue to pick its way back to widespread prosperity.
    As Federal Reserve chair, she should stay the course.

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