Wall Street hurting economic recovery

Federal reserve monetary policies of easy money were the principal cause of speculative bubbles in the Internet, real estate, commodities, etc., and subsequent crash (the oil bubble is resurfacing).

Recent easy money policies of the Federal Reserve, including zero percent interest for big banks, have caused a new trading bubble on Wall Street, with counterproductive results for cash-starved entrepreneurs.

Initial quantitative easing policies (QE 1) of the Federal Reserve (Jan. 2009-March 2010) were purchases of $1.7 trillion of government and mortgage bonds mainly from Fannie Mae and Freddie Mac, with dubious results. A second round (QE II) was announced by the Federal Reserve on Nov. 3. It will provide $600 billion in reserves to big banks by buying bank holdings of long-term government bonds, with the disposition of potentially enhanced bank financing to be determined by Wall Street barons.

Repetitious policy failures reflect an obstinate intransigence by the Federal Reserve, which will engender an enabling environment for more acute speculative bubbles.

A tenet of capitalism is that failed institutions proceed into bankruptcy and dissolution, replaced by institutions with a salubrious impact on the economy; any other course leads to stagnation. The economy is overly awash in liquidity; the problem is misdirection. The dinosaurs on Wall Street are a drag on economic recovery.

George Black

Iowa City