Central banks in the U.S., European Union and China are already cooperating by maintaining very accommodative credit conditions. Throwing more money at the liquidity flooded asset markets is not what's needed, writes Dr. Michael Ivanovitch.
by explaining to Americans that their fully employed economy needed no further credit easing.
As a reminder, note that the Fed's charter mandates what amounts to a fully-employed economy and stable prices. That's a very tough call. In fact, an unsustainable long-term outcome. So, to start with, the Fed could have told the Main Street last week that the economy ended 2019 with a growth rate of 2.4%, and a full-employment jobless rate of 3.5%.Yes, of course, but that would require an increase in the stock and quality of labor and capital. With the active manpower, plant, equipment and technology we now have, the economy can only grow at a non-inflationary rate of about 2%.
There is nothing the monetary policy alone can do about those binding constraints to growth. The Fed would need the help of the government's tax, public spending and regulatory policies to create an increase in the quality and amount of labor supply, best practice technologies, and efficient labor and product markets.Isn't it true that the Fed had to do "something" to forestall the damage the viral epidemic could do to the U.S.
First, there is nothing the Fed can do about the epidemic. It's an issue for American public health authorities, the U.S. Treasury and the Congress. Second, disruptions to travel, tourism and possibly some supply chains,And then the impression of a rear-view outlook is easily removed by the current readings of household incomes, employment and credit costs. They drive private consumption, residential investments and business capital outlays — 87.1% of the total U.S. economy.
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