Manhattan Institute’s Gelinas: Any Fed Action Might Help Markets But Won’t Cure Jobs Crisis

Monday, 10 Sep 2012 05:05 PM

By Forrest Jones and David Nelson

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The weak August jobs report will likely nudge the Federal Reserve to stimulate the U.S. economy via monetary easing measures, although such policies won’t solve the longer-term jobs deficit, said Nicole Gelinas, a Searle Freedom Trust Fellow at the Manhattan Institute.

The economy added a net 96,000 jobs in August, according to the U.S. Bureau of Labor Statistics, well below market forecasts for a gain of around 125,000 jobs.

Even if the numbers had lived up to expectations, too few people are finding employment.

“Unfortunately, either of these numbers would have been a disappointment," Gelinas told Newsmax.TV in an exclusive interview. "We need a good 200,000 or more jobs every month to keep up with population growth and to start to add back some of the 2.5 percent of jobs that we are still missing since 2008,” she said.

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The Fed holds its next monetary policy meeting on Sept. 12 and 13, and the weak jobs figures cemented already growing expectations the U.S. central bank will unleash a third round of quantitative easing (QE) to spur recovery.

Under QE, the Fed buys bonds such as Treasury holdings or mortgage-backed securities from banks, pumping the financial system full of liquidity to drive down interest rates and spur recovery.

Such stimulus measures tend to weaken the dollar but send stock prices rising.

“Unfortunately for many market strategists, good news can be bad news, and bad news can be good news. Without job creation, you may see the Federal Reserve start to pump more monetary stimulus.”

The Fed has twice resorted to QE since 2008, and critics have said past interventions haven’t really created the jobs and growth they were designed to do, adding the measures are merely printing money out of thin air and plants the seeds for inflation down the road.

Editor's Note: Economist Unapologetically Calls Out Bernanke, Obama for Mishandling Economy. See What They Did

Supporters say the policy tool steers the country away from deflationary collapse.

Either way, stock markets might spike, but hiring figures will not.

“I think we will see something new on the monetary front, an election season surprise, if you will,” Gelinas said

“It won’t help jobs. It may help markets, but it won’t help jobs.”

The economy isn’t adding jobs because it hasn’t been allowed to run its course of seeing successful businesses thrive and failing businesses go under, which would allow for normal business cycles.

“Jobs continue to stagnate because the president’s big original sin since coming into office was not allowing the financial system to be subject to creative market destruction,” Gelinas said.

“President Obama continued the Bush administration’s strategy of bailing out these large financial firms and propping them up at all costs. A lot of people may think that’s ancient history now but it sends a signal to investors.”

The so-called bailout culture is not new, going back to the 1984 rescue of Continental Illinois National Bank and Trust Co.

“I think what Americans should be focused on, is if they really take a wide shot and look at the situation and not just over the past four years but going back before that, the real problem with the economy is we got away from free markets,” Gelinas said.

“We’ve had government incentives distorting the housing market and the credit markets for decades. We’ve had that continue. Neither party seems to want to say ‘let’s listen to what free markets are trying to tell us.’ House prices never should have gone so high in the first place.”

In the meantime, expect more stimulus measures and fewer jobs.

“The goal of Washington going back really to 2007 has been to push more money into the economy,” Gelinas added.

“Unfortunately a lot of that money has just gotten trapped in the financial system, so traders see more stimulus as a higher stock market. It doesn’t mean enough to a person who is looking for a job.”

Not only did the August jobs report disappoint, previous figures were revised downward.
July’s figures were revised down to 141,000 from 163,000, while June’s figures were revised down to 45,000 from 64,000.

In addition, the unemployment rate fell to 8.1 percent in August from 8.3 percent in July, as more people stopped looking for work.

Other experts pointed out the economy needs to see massive increases before the economy can go beyond its tepid recovery and truly thrive.

“I would say a good target number would be 400,000 jobs a month,” Diana Furchtgott-Roth, a senior fellow at the Manhattan Institute, also told Newsmax.TV in an exclusive interview.

A Mitt Romney victory in November would help in that a GOP platform would bring in less regulations, lower taxes and more free-market policies.

“The biggest thing that would boost consumer spending and investment would be a Romney win in November. Romney has campaigned on a platform of lowering taxes, of cutting government spending, of encouraging domestic oil and natural gas development, of allowing coal to be used in the United States for energy,” Furchtgott-Roth said.

“And a win by Romney would add a lot of certainty in terms of positive policies to promote recovery.”

Editor's Note: Economist Unapologetically Calls Out Bernanke, Obama for Mishandling Economy. See What They Did

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