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The Fed is Running Out of Monetary Weapons

The opinions expressed by columnists are their own and do not necessarily represent the views of

WASHINGTON -- Everything you ever wanted to know about the Obama economy is in a single sentence about the Federal Reserve Board's attempts this week to deal with unacceptably high unemployment.


"Fed officials projected that the jobless rate, now at 7.7 percent, would not reach 6.5 percent until near the end of 2015 at the earliest," The Washington Post reported in its lead front-page story on Thursday.

If there's anyone out there -- besides Barack Obama's top advisers and diehard allies in Congress -- who think his economic policies, or lack thereof, will restore a weak economy to its full vigor in his second term, they've got a long wait.

Year after year over the course of Obama's impotent fiscal policies, the Fed has thrown everything it had at the economy, pumping trillions of dollars in printed money into U.S. Treasury bond purchases while reducing its interest rates to near zero -- without much to show for it.

Now, with the "fiscal cliff" looming more menacingly than ever before, and economic and jobs data weakening month by month, the Fed is doubling down on monetary measures to breath some life into the economy in the absence of any serious fiscal plan by the administration.

Yet with each long-term prognosis, the Fed's target dates for a hoped-for recovery recede deeper into the future.

What Fed officials are telling us now is that they do not expect to see a light at the end of this long jobless tunnel until nearly the end of Obama's second term. And possibly not until a new president takes his place.

Let's face it, Fed Chairman Ben Bernanke has very few monetary weapons left to turn this economy around, and he's said many times that the only real solution lies in fundamentally changing fiscal policy.


That means reducing the massive amounts of capital that the government sucks out of the economy each year, and enacting economic growth incentives on the tax side of the equation.

But Obama opposes any serious policy changes in that direction. Instead, he wants to do just the opposite: extract trillions more from a weak economy through higher taxes so he can spend more on waste-ridden programs like his multibillion-dollar clean energy investments. Recently, a battery manufacturer was added to his list of failures, this one costing taxpayers $133 million.

Even though Bernanke's plaintive pleas for changes in fiscal policies have fallen on deaf ears at the White House, he tried again at a news conference Wednesday when he announced the Fed's stepped-up goals for the economy.

"If the economy actually went off the fiscal cliff ... that would have very significant adverse effects on the economy and on the unemployment rate," he said. "We would try to do what we could ... but I just want to again be clear that we cannot offset the full impact of the fiscal cliff. It's just too big."

"The most helpful thing that Congress and (the) administration can do at this point ... is to find a solution and avoid derailing the recovery," Bernanke said.

It should be clear that nothing the Fed said it would do is going to change the profound economic challenges we face, now or ever.

The financial markets' reaction to the Fed's actions was a great yawn, and stock markets ended the day essentially flat.

Meantime, Obama continues to live in his own dream world, a hermetically sealed universe in which he insists the economy is doing fine. Speaking to a crowd of several hundred union workers in Detroit Monday, he said: "We're moving in the right direction. We're going forward. So what we need to do is simple -- we need to keep going forward."


This from a president who said earlier this year that "the private sector is doing just fine."

But at best, the economy is barely moving. It's creeping along at an average annual growth rate of 1.7 percent -- well below the growth rate needed to bring unemployment down to normal levels.

Worse, the economy as a whole is not going forward. It's in reverse. Economists say its growth rate has slowed in this quarter to no more than 1.5 percent, perilously close to the tipping point into another recession.

Obama also told those auto workers that "American manufacturing is growing at the fastest pace since the 1990s," and that factories have created nearly 500,000 jobs since 2010.

The painful reality is that manufacturing still has 2 million fewer jobs than existed before the recession. Last month's jobs report showed that the number of manufacturing and construction jobs remained unchanged.

Economists on both sides of the political aisle say this is the weakest recovery since the Great Depression, and the unspoken reality is that Obama has not offered any new comprehensive plan to get the economy moving since his failed $800 billion stimulus program in 2009.

He has proposed tinier versions of the same plan, but they have been rejected by Congress and there has been no substantive White House proposal since then.

So the economy is limping along on automatic pilot as it cruises on the edge of the dreaded fiscal cliff, while the president lives in a fantasy world in which our factories are "humming again," as his campaign's TV ads said, jobs are being created at an imagined pace, and a fictionalized economy is improving.


But there's a mountain of growing evidence that things are not OK. Pessimism is growing, businesses large and small are pulling back, and consumers are spending less than expected.

The National Federation of Independent Business index of small-business optimism has sunk to one of its lowest levels in a quarter of a century. The percentage of NFIB's small-business owners who think the Obama economy will improve fell by 37 points.

The University of Michigan's closely watched consumer confidence preliminary index for December fell sharply to 74.5 from 82.7. And national retail sales were up by only 0.3 percent last month, half of what forecasters predicted.

Meantime, the president is still peddling higher taxes as the only cure for what ails us -- the economic equivalent of the 18th-century practice of bleeding the patient. And we know how that turned out.

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