But besides 22 million more domestic jobs and a stabilized
regional economy, China received something more tangible for its massive
government investment. In fact, it’s gotten a lot of things, including 11,000
miles of High-Speed Rail (HSR) lines and new bullet-trains to service them.
That accounts for just a fraction of the approximately 40% spent on
infrastructure projects, which included new roads and airports, reconstruction
projects in areas struck by natural disasters, the construction of low-cost
housing, and around 5 billion in new “green” technology.
At the same time, the US was also attempting to shore up its
economy – but did so by using 150 billion to provide each US taxpayer with an
extra $300 in pocket money, and by spending another 700 billion bailing out a handful
of large investment firms, banks, and automobile manufacturers. The result? A
net loss of over 3 million jobs, the continued existence of a few large firms,
and no appreciable improvement or expansion in the nation’s key infrastructure.
Now, the US Federal Reserve is firing another 600 billion
dollar shot from the money gun at the US economy – which begs the question,
what will it do for America? Sadly, the answer is “probably not much.” Few
people understand exactly what the Fed is doing – certainly most articles in
the mainstream media don’t explain it well. In the simplest terms, the Federal
Reserve has 2 primary methods it can use
to stimulate the economy (and it can do this without Congressional or
Presidential approval). The first method is to lower interest rates, which is
supposed to incentivize people and businesses to borrow money to buy products
(including homes and cars) and is expected to grow the economy by raising
consumption. But in this case, they’d have to lower the Federal Funds Rate (the
rate banks charge each other to loan funds between each other) below zero –
it’s already at the lowest rate since 1954.
Instead, the Fed is using another the second approach, which
is to literally print money and use it to buy back existing government debt
from banks. This will have the effect, in theory, of putting more money into
the banks at a rate below zero interest – which the banks can then lend out at
rates even lower than the current record-low rates. In theory, this will
encourage businesses and private citizens to borrow, borrow, borrow and spend,
spend, spend.
Some might shake their head and wonder if that’s not exactly
what got us into this mess in the first place – US over-consumption of consumer
goods. And they’d be right to wonder. They should also be wondering what will
happen if canny banks choose to sit on the money, or use it as a cushion to
allow themselves to write off bad debt internally, or to invest it in
speculative ventures for their own benefit.
What’s very unlikely to happen is that any of this money
will show up in the form of reinforced bridges, upgraded airports, a new air
traffic control system, high-speed rail linking major cities, new low-cost
dwellings for the underprivileged, additional money for education and health or
any other significant and tangible improvements to American infrastructure and
human development.
Who will benefit from this latest attempt at stimulating the
US economy? The domestic winners may be the upper and middle classes, those
whose credit is sufficiently good to take advantage of any decrease in interest
rates to buy up income-producing assets such as rental property. But the
stimulus is unlikely to produce either jobs for any class of worker, nor
provide greater access to loan funds for the lower class and those who are out
of work, or have other blemishes on their credit. The losers are also the
public at large that might have benefited from the second order effects of
infrastructure improvements, along with the unemployed who might have been
hired to build and service such projects. And of course, as the extra dollars
drive inflation up, everyone will suffer higher costs for goods and services.
Abroad, the short-term winners may be developing economies that enjoy infusions
of investor cash as those able to borrow in the US seek foreign assets with
higher returns to line their pockets. The losers, of course, will be those
economies that find a weakening dollar drives the cost of their products up and
lowers sales.
All in all, this represents an opportunity for the lucky
few, and an opportunity lost for the country as a whole.
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