Meanwhile, private companies are not helping; they have continued to "hoard cash" and spend little. In addition to that, "Not only are firms sitting on cash and failing to hire more workers, but also banks have tightened their credit standards, making it difficult for people to get exposure to low rates through cheap loans."
All the quantitative easing and stimuli are boosting stock prices into a bubble, but the economy is still slow. It seems to me like the Federal Reserve is pushing and pushing, but without the private companies passing the stimulus along and circulating wealth, the effort isn't extremely effective. Also, the large amounts of quantitative easing concerns me because what if there's lag, and the economy appears to be slow until suddenly the extra money adds up and becomes unhealthy inflation?What should the government to to motivate the private sector to move the economy? Is there anything else the Federal Reserve can do to get growth going again? And what's your opinion on the quantitative easing?
5 comments:
I agree that businesses aren't helping the sluggish growth of the economy. Just the other day, Apple sold 17 billion dollars of bonds, a record breaking amount for private company bonds, in order to get itself out of some debt. If Apple is reluctant to spend, it's no wonder the economy is moving slowly. I suppose this situation merits quantitative easing, or at least some kind of stimulus, but I'm no economist, I can't say 85 billion a month is enough (or even too much) money to fix the problem.
In my opinion, to stimulate spending, government should first try to find a more direct path to get the money to lower income individuals because people with lower incomes aren't as likely to hoard money since they need to spend it on necessities. The spending from lower income individuals will help stimulate the economy because their increased spending will convince businesses that there is a demand for their products. This will improve the businesses' confidence in the market. Once their confidence goes up, then the government can depend more on businesses to use the new money from quantitative easing to increase activity rather than hoarding it.
How fun, issues with what sounds like trickle down. The main problem with supply-side is that it doesn't account for the fact that the corporations are managed by people who will look out for their own interests. Why should they spend their money for the sake of helping people who they believe to be below them? They will just easily stockpile money because that is more beneficial to them as is apparent in Rachel's example with Apple. To solve this, there needs to be some sort of incentive to have the corporations spend their new money. What that could be is hard to say, but if there is no incentive, nothing will be done. To make a long story short, quantitative easing will not work if it has no incentive to back it up.
I think at this point, the government is really limited to its two strategies of moving the economy, interest rates and quantitative easing. Considering the slow economy, interest rates are not an option as they are already low, however, quantitative easing needs to be tied to a way for corporations to spend efficiently as Preston mentioned. One way that I think has already been in effect and could possibly improve in the future is tax breaks and loans for companies investing in green energy technology. Yes, yes there are terrible stories like Solyndra that leaves a sour taste in people's minds but frankly that was only one of many new green investment companies. America needs to push for a greener future but the right amount of incentives and monetary flow need to be offered for this to work out.
I feel like the government can only do so much with regards to getting the private sector to start hiring. Tax incentives and other methods have been considered, but will probably have limited effects. As Alvin said, perhaps getting companies to invest in a new area, such as green technology will be a helpful solution.
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