by Gonzalo Lira

WEDNESDAY, FEBRUARY 1, 2012

This is the problem Ben Bernanke and the Federal Reserve currently have—and it’s their own stupid fault: They have promised to maintain interest rates at effectively 0% until at least the end of 2014—they have in fact announced this zero interest-rate policy (ZIRP) as the hallmark of their strategy to reignite the economy—

—but then they’re surprised when businesses aren’t borrowing more. They’re surprised when lending is in fact contracting. They’re surprised when the American economy doesn’t start borrowing—and thus growing—like crazy. 

So the American economy obviously doesn’t benefit from ZIRP. In fact, it stagnates because of ZIRP. 

Leaving aside the deplorable notion that debt-fueled consumption is “growth”, businesses are not going to borrow to expand during the announced period of ZIRP, because business owners will say, “I’m really not sure if my market is growing—and since I can get a low-interest loan for at least the next three years, I think I’m going to hold off on any expansion of my business, hold off on hiring new workers, and instead wait and see if the economy really does pick up. If it doesn’t pick up, I won’t have more debt to service. And if it does pick up, I can always borrow and expand later.”

“I can always borrow and expand later”: That’s what every sensible business owner is saying today. Why eat free chocolate now—when I can eat it for free later? Why borrow for free now—when I can borrow for free later? 

And of course, later becomes never. 

[…]

So then, if businesses—and the wider economy—do not benefit from ZIRP, who does?

Why, the banks and the Federal government! (Yeah, I know:How am I not surprised … ?) 

See, the banks get their 0% loan from the Federal Reserve—and promptly go out and buy U.S. Treasury bonds, yielding 2% or so. Sure, a 2% yield is nothing—but it’s a whole lot of something when it is risk-free, and adds massively to the banks’ bottom line. And ultimately to the banksters’ bonuses. After all, the Federal government isn’t borrowing twenty bucks for gas: It’s borrowing $1.6 trillion a year—every year. 

Thus the Federal government, that glutton for debt, also benefits from ZIRP. 

Worse still, ZIRP is a disincentive to reduce the deficit and the overall debt. Since Bernanke and the Federal Reserve are putting out 0% money over the next three years, the Federal government will be under zero-pressure to reduce the deficit and pay down the debt. In fact, ZIRP encourages fiscal irresponsibility. After all, it is the rising coupon payment which eventually leads to rising debt levels being choked off. 

ZIRP doesn’t eliminate the Minsky Moment—that is, the Day of Debt Reckoning. Rather, ZIRP merely postpones it—while making it a whole lot bigger. 

Thus the Federal Reserve’s zero interest-rate policy does not help businesses expand and thus hire more workers to restart the economy; it does not encourage banks to lend to economically productive sectors; and it does not get the Federal government to begin reducing the deficit, let alone the debt. 

In fact, ZIRP makes all these problems worse. 

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Podcast: Lew Rockwell talks to Bob Wenzel about Ron Paul, the establishment, government insider-trading, and the scary economic future.

by THE ASSOCIATED PRESS

BRUSSELS January 30, 2012

BRUSSELS (AP) — Belgian trade unions organizing a nationwide strike Monday called on leaders attending the European Union summit in Brussels to move away from austerity measures and start boosting growth and employment.

The 27 EU leaders converging on Brussels for their informal summit were largely unaffected by a train and public transport strike, even though some had to come through a small military airport instead of the main one in Brussels.

“We used our military plane — very small — but it functions. It is quite cold, but nevertheless we came,” said Finland Prime Minister Jyrki Katainen.

Belgium’s three main unions have called for efforts to reinvigorate the European economy by centering on taxing multinationals and boosting public investment instead of slashing public services and imposing a pension reform that forces people to work longer and cuts payments in some cases.

One of the country’s airports was closed and Brussels’ international airport suffered cancellations, delays and diversions. Traffic delays were limited since many people either worked from home or took a day off.

Trade union leaders converged at the summit building for a small demonstration, demanding a better deal for the workers.

“What we need is growth. Growth creates jobs. And you don’t get growth when you suck the oxygen out of the economy by austerity, austerity, and then some,” said Christian Democrat union leader Marc Leemans.

Overall, 23 million people are jobless across the EU, 10 percent of the active population.

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