Tags: Payne | Fed | Economy | Shambles

Payne: Fed Seeks to Buy Time for an Economy Still in Shambles

Thursday, 13 Dec 2012 07:29 PM

By Forrest Jones and David Nelson

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The Federal Reserve's decision to ramp up its monetary stimulus program and to peg its policy of keeping rates low until specific unemployment targets are met signals the U.S. economy is much weaker than it appears, said Fox News contributor Charles Payne.

The Fed recently said interest rates will stay just above zero as long as unemployment rates remain above 6.5 percent and as long as inflation rates don't threaten to push past a 2.5 percent threshold. The jobless rate last month was 7.7 percent.

The Fed's benchmark interest rate, the fed funds target, stands at 0.25 percent.

On top of tying interest rates to unemployment and inflation rates, the Fed bolstered its bond-buying program designed to stimulate the economy even further. The central bank announced plans to buy $45 billion in Treasury holdings a month from banks with the aim of spurring recovery and cutting into high unemployment rates.

Those bond purchases come on top of $40 billion in mortgage debt the Fed is currently purchasing from the country's financial institutions, a policy tool known as quantitative easing but dubbed by many as printing money out of thin air.

Such measures indicate the Fed Chairman Ben Bernanke wants to give the economy a long time — several years if need be — to pull unemployment rates down to 6.5 percent.

"He was buying time," Payne told Newsmax TV in an exclusive interview.

"In my mind what the Fed chairman was saying is that our economy is still in such shambles, it's so vulnerable, that I need to find a way to buy another two, three or four years out of this thing."

Editor's Note: Tiny Loophole Found in 70,320 Page IRS Tax Code Could Pay $87,500

Meanwhile, the Fed's balance sheet will swell further as it snaps up Treasury holdings and mortgage debt from banks and pumps them with freshly printed money in the process.

Global investors may turn up their noses on U.S. Treasury bonds or demand higher interest rates down the road if the debts and deficits aren't tackled, though U.S. debt is likely safe for now.

"We are living off the past, we are living off our legacy. We are living off the fact that we don't have any true competition. Where would you buy? You are not going to buy Italian debt right now," Payne said.

"We've got that going for us, but will we have that going for us in a year or two, three or four years down the road?"

Turning to fiscal matters, Payne pointed out that negotiations between the White House and Congressional Republicans are likely tipping in favor of the president.

Both sides of the political aisle are negotiating ways to avoid the fiscal cliff, a combination of sweeping tax hikes and deep spending cuts due to take effect at the end of this year.

Failure to avoid the fiscal cliff could tip the country into a recession, though sticking points can be found in expiring tax breaks — Democrats want them to expire for top U.S. earners, while Republicans want them extended for everyone but come hand-in-hand with caps to deductions to raise revenue.

Since the president won reelection and Democrats still control the Senate, they'll likely get their way when it comes to tax hikes, especially since the next round of elections aren't for another two years.

Republicans, Payne pointed out, didn't focus enough on the spending side of the fiscal cliff equation early on.

"For the most part I think the Republicans fumbled out of the gate with the conversation being specifically on taxes or revenues and not having even initially a balanced discussion—perhaps in private but certainly in the public arena—on spending cuts. They already shot themselves in the foot with respect to that," Payne said.

Some polls show Americans favor raising taxes on the wealthy though most indicate they want spending cuts as well, and focusing on spending more so on taxes earlier would have given the GOP a stronger hand

"I've got a feeling that this is going to go down to the wire, and I think maybe both sides will blink; but already the Republicans have lost because this whole debate has been centered on how to generate more revenue instead of how to cut spending, which is really the crux of the problem," Payne said.

Editor's Note: Tiny Loophole Found in 70,320 Page IRS Tax Code Could Pay $87,500

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