Tag Archive for 'Fed'

More Fed QE won’t help small business

In the fall of 2008, one of the entities charged with helping the U.S. economy avoid a full financial collapse was the U.S. central bank, the Federal Reserve Board.

The Fed has many monetary tools to infuse liquidity into a weak economy, including buying securities with money it creates, literally from thin air. So when the 2008 financial collapse happened, the Fed initiated a plan it called “quantitative easing” (QE), and bought hundreds of billions of dollars of securities from banks and other financial institutions. Most experts consider this step to have limited the depth of the crisis.

When economic recovery remained tepid more than a year after the end of the Great Recession, the Fed launched QE2 in 2010, buying billions more of various securities from Wall Street entities. And even though two years hence a still-languishing economy seems to demonstrate that liquidity is no longer our problem, the Fed recently announced yet another round of accommodation called, wait for it … QE3.

We wanted to know what small business owners thought about this recent Fed step, so in our online poll, we asked this question: “What do you think about the Fed’s third round of liquidity infusion (QE3)?” Here are the results.

Only 2% of our sample said, “This is good economic policy,” while 11% admitted they “Don’t understand it.” The big group – 86% – reported they thought this move was “Not good economic policy.”

So why are small business owners so anti-QE? Perhaps it’s because they aren’t feeling the love from the Fed.

Remember, when the Fed buys securities that money goes to Wall Street, not Main Street. Since 2009 the Dow-Jones index has risen 1000 points each year and the NASDAQ has doubled. Meanwhile the Main Street economy continues to languish barely above recession levels, contributing to extremely weak small business loan demand from their only direct connection to Fed liquidity: banks.

Furthermore, since many economists believe hyper-inflation will eventually result from the Fed’s QE strategy, small businesses – which have not benefited from QE – will be hurt by the inflation. Plus, unlike Wall Street, small businesses don’t operate with buy/sell limits or hedging strategies that allow them to make money regardless of which direction the market is going. They’re planted in the ground, on Main Street.

Small businesses need Fed policies that grow the economy, not just the stock market.

Small businesses need MC (more customers), not more QE.


Recently on The Small Business Advocate Show  I had conversations with Mike Menzies and Ray Keating on validity of using quantitative easing to stimulate the economy and it’s impact on small businesses. Mike is President of Easton Bank & Trust in Easton, Maryland, and Ray is Chief Economist of the Small Business & Entrepreneurship Council. Click on one of the links below to download or listen.

The Fed’s QE3 plans aren’t what the economy needs with Ray Keating

The Fed’s QE3 plans will hurt small businesses with Mike Menzies

Check out more great SBA content HERE!

Watch Jim’s videos HERE!

Take this week’s poll HERE!

Should the Fed be replaced with the gold standard?

The Federal Reserve Board was created by an act of Congress in 1913. Prior to its creation, there had been a number of dramatic and damaging economic cycles, including depressions, and it was believed that such a body would be able to manage the monetary elements of the economy in such a way as to either eliminate or minimize these dangerous swings.

In the intervening years, the Fed has had mixed reviews: Some have proposed that since the Fed didn’t stop the Great Depression, nor prevent recessions like the serious one we’ve recently experienced, it hasn’t lived up to its charter and should be eliminated. Others say that without the Fed, the economic cycles we’ve had would have been worse.

Today, some think we should abolish the Fed and return to the gold standard and use this underlying collateral for the U.S. currency as a better way to maintain price stability. But it’s important to point out that we’ve had economic cycles with: a) the gold standard and no Fed; b) the Fed and the gold standard; and c) the Fed and no gold standard. Small business owners just want a system that provides the best chance of adequate access to credit, low interest rates and low inflation.

It seems to me that the global economy is much too complex to just rely on the price of one or more commodities to manage price levels and monetary policy of the largest economy in the world. Perhaps the best system would be to keep the Fed for monetary policy and give it some support on price stability by reinstating the gold standard.

But I’m not the expert on this issue, and that’s why I turn to those who are, including two of my Brain Trust members, Dr. Robert McTeer and Wayne Allyn Root. Bob McTeer was the president of the Dallas Federal Reserve Bank and, therefore, a member of the Fed’s Open Market Committee. Currently, he’s a Distinguished Fellow with the National Center for Policy Analysis. Wayne Root was the 2008 Vice Presidential candidate for the Libertarian Party and is the author of The Conscience of a Libertarian.

Recently, I interviewed both of these men together on my small business radio program, The Small Business Advocate Show, where they discussed the relative merits and demerits of the Fed and the gold standard. Take a few minutes to listen to what they had to say. And, as always, be sure to leave your thoughts. Listen Live! Download, Too!

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