Rodney Johnson | Monday, February 25, 2013 >>
I know several people who are unemployed. In fact, I probably know of tens of people who are without a job. Some are recent college graduates, some are middle aged professionals that were part of layoffs… some are people who never could seem to keep a job.
You know the same sort of people. While the slacker type will always be part of the permanently unemployed, it is the rest of the people that tug at our heart strings.
Right now, getting a job is tough for anyone, and watching hard workers languish without being able to support their families is heart wrenching.
Luckily, the Fed is here to help….
Part of the Fed’s mandate is to pursue maximum unemployment in the U.S. Now the Fed has made unemployment their single most important statistic.
Last fall, the Fed announced they would continue with their unconventional monetary policy until unemployment fell below 6.5%, which is 1.4% lower than right now, and represents roughly 2.1 million people (if you accept the current fuzzy number of course… which we don’t… but for the sake of this argument, whatever the number, the point remains the same).
The most aggressive part of the Fed’s policy is to print new money to the tune of $85 billion per month, which is used to buy bonds – both U.S. Treasury and mortgage backed.
This is supposed to help unemployment by creating a low interest rate environment whereby borrowers can borrow more money to fund business expansion or personal consumption. These two activities are supposed to create demand, which hopefully will lead suppliers (home builders, retailers, etc.) to hire more people. This is a long, circuitous route to bringing down unemployment.
We have data on how this approach is working. After exhausting lower interest rate policies, the Fed began printing money with abandon. First $1.25 trillion. Then $600 billion. Now the policy is, “whatever it takes, at $85 billion per month.” Meanwhile, unemployment has moved down slowly.
If we examine the policy on a monthly basis, it brings the difficulty of the approach into focus. In January, the Fed printed $85 billion, as it has for several months now. Meanwhile, the economy only created 157,000 jobs in January.
A little math tells us that each job “costs” $540,000 in newly printed dollars. Given that the top 1% of earners rake in about $380,000 per year, the cost of half a million dollars per new job seems a bit steep.
I’ve got a better idea.
Instead of using a very expensive roundabout way to create a few jobs, let’s cut out the middlemen.
The Fed should announce a lottery. All persons currently listed as unemployed will be entered into a pool each month. From this pool 500,000 people will be selected, and each will be sent $100,000. The caveat is that the recipients cannot file for unemployment for at least 18 months.
The cost of the program is obvious – $50 billion per month. The duration should be four months or less, given that two million people will have received funds in this way over that time.
This approach is quite elegant, because it not only gives the unemployed a big payday, it gives market participants a clear end date to the current monetary mess the Fed is creating. As an added bonus, it takes two million people off of the unemployment rolls, which assists cities, states and the federal government all at the same time.
What a win!
Now, some might claim that this is a poor approach because it involves compensating people in exchange for… nothing. There is no productivity gained, just billions more in dollars flooded into the economy.
My answer is, “Exactly.”
This is what the Fed is doing right now – creating dollars out of thin air, with no productivity attached, and flooding them into the economy. The difference is, my approach benefits people, while the Fed’s approach benefits banks. Who would you rather see get the cash?
P.S. Yes, I let the issue of fuzzy numbers slide for today, but only with great effort and little grace. The fictitious numbers the government feeds us are not only insulting to your intelligence, they’re also downright hazardous to your wealth, business and investments. That’s why we dedicate two full hours to uncovering the REAL numbers at Demographics School. Join us this April 24-25 in Phoenix, Arizona. It’s when you have the FACTS that you have the power.
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