We spend $1 trillion annually on federal welfare programs, decades after Daniel Patrick Moynihan said that if one-third of the money for poverty programs was given directly to the poor, there would be no poor. But there also would be no unionized poverty bureaucrats prospering and paying dues that fund the campaigns of Democratic politicians theatrically heartsick about inequality.Yeah.
He also points out a possible tension between the expansionary monetary policy and a fiscal policy rendered less expansionary in pursuit of inordinately many targets.
Richard Fisher, president of the Federal Reserve Bank of Dallas, says the total reserves of depository institutions “have ballooned from a pre-crisis level of $43 billion to $2.5 trillion.”Capital has gone on strike.
And? “The store of bank reserves awaiting discharge into the economy through our banking system is vast, yet it lies fallow.” The result is a scandal of squandered potential:
“In fourth quarter 2007, the nation’s gross domestic product (GDP) was $14.7 trillion; at year-end 2013 it was estimated to be $17.1 trillion. Had we continued on the path we were on before the crisis, real GDP would currently be roughly $20 trillion in size. That’s a third larger than it was in 2007. Yet the amount of money lying fallow in the banking system is 60 times greater now than it was at year-end 2007.”
The monetary base having expanded 340 percent in six years, there is abundant money for businesses. But, says Fisher, the federal government’s fiscal and regulatory policies discourage businesses from growing [c.q.] the economy with the mountain of money the Fed has created. This is why “the most vital organ of our nation’s economy — the middle-income worker — is being eviscerated.” And why the loudest complaints about inequality are coming from those whose policies worsen it.
There's a further complication, in that the magnitude of capital created by the repo market prior to 2008 might be far greater than that of the idle official money rendered impotent by hope and change.