How Can Fed Policy Help Main Street?

The Real News Network has the video interview How Can Fed Policy Help Main Street?

I do have a couple of complaints.  In light of my previous posts Janet Yellen on Problems Controlling Bank Excess Reserves and Janet Yellen On Problems of Fiscal Drag and in light of  what Pollin has to say in this interview, it is just ridiculous for the video to start off with “Man In The Street” interviews. 

It is silly to have interviews with people on the street who couldn’t possibly know what Pollin knows about the Fed, how it works, and how the monetary system works. Please, The Real News Network, do not fall into the lamestream media habit of asking people for opinions on things they are unlikely to have an informed opinion about. Would you ask people what they thought about the way surgeons are doing heart transplants in their local hospital? What you asked of the people on the street is just about as ridiculous.

The other complaint is that it would have been good to ask Pollin how his suggestions for taxing the excess reserves might impact the concern of the Fed explained by Janet Yellen.

POLLIN: … All that said–and the Fed is operating by historic standards an extremely aggressive policy by keeping the interest rates for banks so low. But that policy is only a stimulus for the banks so far. The banks have piled up $2 trillion in cash reserves–nothing like that has ever happened, 12 percent of U.S. GDP, while the small business sector overall is still starved for credit. In fact, overall they have not gotten a dime of net new create credit since 2008–again, also unprecedented.

So the problem is not stimulus/no stimulus. The problem is Yellen and Bernanke are practicing a stimulus program that is not well designed to accomplish what needs to get accomplished, which is to deliver affordable credit to small businesses and to expand opportunities for working people, not just for the banks.
POLLIN: Well, I think they could do two simple things. One, tax the banks for holding so much cash in reserve. The banks are getting this money for free. It’s a zero interest rate policy that the Fed is practicing, and the banks have piled up $2 trillion in cash reserves. So the banks are sitting on a cash hoard. That should be taxed–not all the way down so that it would owe nothing. They do need to have cash reserves to get through any future crises as a cushion, as a safety net, but $2 trillion is wildly excessive. I mean, we could pump in $1 trillion–that’s about 6 percent of GDP–and they would still have $1 trillion in reserve. So that’s number one.


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