Austin Hill

Breaking news: officials in our U.S. Federal Government do not know how to solve all our woes.

This actually shouldn’t be “news.” Leaders from none other than the Federal Reserve, itself, have repeatedly admitted this in recent months.

Fed Chairman Ben Bernanke has admitted this multiple times, and in a variety of different contexts (a point I’ll review momentarily). But last Wednesday, the President and C.E.O. of the Federal Reserve Bank of Dallas reiterated this point himself, and his announcements have largely been ignored.

In a Speech before the Harvard Club of New York City, bank President Richard Foster publicly restated his opposition to the Fed’s recent decision to launch “QE3,” its third attempt in three years to use monetary policy to stimulate the economy. Foster began his speech noting that “with each program we undertake to venture further in that direction (in the direction of using monetary policy as stimulus), we are sailing deeper into uncharted waters. We are blessed at the Fed with sophisticated econometric models and superb analysts. We can easily conjure up plausible theories as to what we will do when it comes to our next tack or eventually reversing course. The truth, however, is that nobody on the committee, nor on our staffs at the Board of Governors and the 12 Banks, really knows what is holding back the economy.”

Later in the speech, Mr. Foster noted that our economy “is already flush with $1.6 trillion in excess private bank reserves owned by the banking sector and held by the 12 Federal Reserve Banks. Trillions more are sitting on the sidelines in corporate coffers. On top of all that, a significant amount of underemployed cash—or fuel for investment—is burning a hole in the pockets of money market funds and other non-depository financial operators. This begs the question: Why would the Fed provision to shovel billions in additional liquidity into the economy’s boiler when so much is presently lying fallow?”

The economy is being held back despite trillions of dollars “lying fallow,” and the highly educated experts at the Federal Reserve can’t figure out why. Mr. Foster deserves our thanks for being so truthful – yet we should all be concerned about his observations.


Austin Hill

Austin Hill is an Author, Consultant, and Host of "Austin Hill's Big World of Small Business," a syndicated talk show about small business ownership and entrepreneurship. He is Co-Author of the new release "The Virtues Of Capitalism: A Moral Case For Free Markets." , Author of "White House Confidential: The Little Book Of Weird Presidential History," and a frequent guest host for Washington, DC's 105.9 WMAL Talk Radio.