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September 30, 2013

K-12 Tax & Spending Climate: The Fed has become a creature of politics

George Will:

ZIRP, which Yellen ardently supports, is trickle-down economics: Money, searching for yields higher than bonds offered under ZIRP, floods into stocks, the rising value of which supposedly creates a "wealth effect" -- feelings of prosperity that stimulate spending and investing among the 10 percent who own about 80 percent of all stocks.
ZIRP also makes the Fed an indispensable enabler of big government. By making borrowing, and hence deficits, cheap, ZIRP facilitates the political class's bipartisan strategy of delivering current benefits while deferring costs. ZIRP also provides cheap credit to big government's partner, big business.

Originally, in 1913, the Fed's mission was price stability -- preserving the currency as a store of value. In 1977,Congress created the "dual mandate," instructing the Fed to maximize employment. This supposedly authorizes the Fed to manipulate the stock market, part of Bernanke's inflation of the dual mandate into "promoting a healthy economy." Is a particular distribution of income unhealthy? The Fed will tell us.

Interestingly, the Madison School Board recently passed a 2013-2014 budget that features a 4.5% property tax increase, after a 9% increase two years ago.

Posted by Jim Zellmer at September 30, 2013 12:04 AM
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