Antti J. Ronkainen: The Federal Reserve is the most significant central bank in the world. How does it contribute to the domestic policy of the United States?
Michael Hudson: The Federal Reserve supports the status quo. It would not want to create a crisis before the election. Today it is part of the Democratic Party’s re-election campaign, and its job is to serve Hillary Clinton’s campaign contributors on Wall Street. It is trying to spur recovery by resuming its Bubble Economy subsidy for Wall Street, not by supporting the industrial economy. What the economy needs is a debt writedown, not more debt leveraging such as Quantitative Easing has aimed to promote. But the Fed is in a state of denial that the U.S. and European economies are plagued by debt deflation.
The Fed uses only one policy: influencing interest rates by creating bank reserves at low give-away charges. It enables banks too make easy gains simply by borrowing from it and leaving the money on deposit to earn interest (which has been paid since the 2008 crisis to help subsidize the banks, mainly the largest ones). The effect is to fund the asset markets – bonds, stocks and real estate – not the economy at large. Banks also are heavy arbitrage players in foreign exchange markets. But this doesn’t help the economy recover, any more than the ZIRP (Zero Interest-Rate Policy) since 2001 has done for Japan. Financial markets are the liabilities side of the economy’s balance sheet, not the asset side.
The last thing either U.S. party wants is for the election to focus on this policy failure. The Fed, Treasury and Justice Department will be just as pro-Wall Street under Hillary.
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