Tags: Reich | fed | easing | economy

Reich: More Easing Won’t Help Economy

Thursday, 25 Aug 2011 04:13 PM

Economist Robert Reich says more monetary easing won't do much to ease economic woes.

"To have any effect then, monetary easing has to be accompanied by expansionary fiscal policies that spur demand," Reich writes for American Public Media.

"The problem is, in Europe as in the United States, politicians are now practicing fiscal austerity — cutting public budgets, at the very time consumers and the private sector are cutting private budgets," wrote Reich, now a professor of public policy at the University of California at Berkeley.

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Robert Reich
(Getty Images photo)
"More expansive monetary policies are unlikely to do much good on their own. When demand is slowing so dramatically and unemployment is already high, expanding the money supply is like pushing on a wet noodle."

"Nothing happens," wrote Reich, who served in three national administrations and was a secretary of labor under President Bill Clinton.

Even at very low interest rates, companies won't borrow to expand and hire more workers if they doubt they'll have more customers for what they produce, Reich says. And consumers won't borrow to spend more on goods and services if they're worried they won't have jobs or their wages will continue to fall.

“We're perilously close to a global recession,” Reich says, adding that the U.S. economy is hardly growing at all, most of Europe is a basket case and the Japanese economy is “barely functioning.”

“And what had been the fastest-growing big economy in the world — China — is furiously pulling in the reins, to avoid inflation,” Reich says. “As a result of all of this, global demand is shrinking.”

Reuters reports that, according to the think tank under China's National Development and Reform Commission, China's average inflation rate is likely to accelerate in the third quarter to 6.2 percent from 5.7 percent in the previous quarter.

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Economist Robert Reich says more monetary easing won't do much to ease economic woes. To have any effect then, monetary easing has to be accompanied by expansionary fiscal policies that spur demand, Reich writes for American Public Media. The problem is, in Europe as...
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2011-13-25
Thursday, 25 Aug 2011 04:13 PM
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