Earth to Congress: The Fed Can't Fix This

Today's highlighted the often-ignored plight of the U.S. fiscal cliff

. Beginning in January 2013, $1.2 trillion

of automatic, across-the-board cuts in discretionary spending will take place over 10 years, as directed by the congressonional “supercommittee” last November (yawn…remember them?).

> Of course, there is still time for Congress and take a serious look at what should be on the

chopping block, but none of this will take place until after the election, if it does at all. Meanwhile, the WSJ notes that economists expect the Federal Reserve to buy assets this year, lowering interest rates. Really?

I am by no means a die-hard Keynesian, but right now the investment schedule (IS) curve, as known in Keynesian economics, is evidently inelastic. That means that no amount of low-interest rate “carrots” will entice investors into moving their money into jobs-producing, income-growing, GDP-boosting ventures. Monetary policy from the Federal Reserve will not work, so Congress needs to start making decisions – preferably before the election.

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Comments (4)

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  1. Kyle says:

    Congress won’t make any serious changes until after the election. It’s unfortunate that responsible govnerment takes a back seat to political survival. Just look at the expiration of the payroll taxes, and the ~1% increase on those making over 250k.

    I would personally love to see the Fed’s response to this, in fact.. any transparency at all would be fantastic.

  2. AD says:

    Read Scott Sumner. The Fed doesn’t need to lower interest rates to use stimulus. We don’t need more wasteful spending and bailouts.

  3. Jean H says:

    No way to recoup our economic health until small businesses can start up or grow without government interference, or unreasonable regulations from EPA, etc.

  4. DukesCapital says:

    The ways we solve issues relating to healthcare reform also hold the keys to solving other systemic problems. Consumer driven incentives, value-based purchasing, and the control/managment of capital to the physicians taking risk in the new ACO environment mirrow what can be done in other danger zones growing daily and digging a deeper hole. The NCPA could be offering up solutions in these areas, could it not?