"Corporate Welfare; The Fed Created Monster"

Unemployment likely will remain high for the next several years because the economic recovery won't be strong enough to spur robust hiring, Federal Reserve officials warned Tuesday.

The cautionary note struck by the presidents of regional Fed banks were the first public remarks by Fed officials since the government reported last week that the nation's jobless rate bolted to 10.2 percent in October. It marked only the second time in the post-World War II period that the rate surpassed 10 percent.

In separate speeches, Janet Yellen, president of the Federal Reserve Bank of San Francisco, and Dennis Lockhart, president of the Federal Reserve Bank of Atlanta, warned that rising unemployment could crimp consumers, restraining the recovery. Consumer spending accounts for about 70 percent of economic activity.

"With such a slow rebound, unemployment could well stay high for several years to come," Yellen said. "In other words, our recovery is likely to feel like something well short of good times." (Read Full Article)

Three top Federal Reserve officials on Tuesday struck a cautious note on the U.S. economy, citing high unemployment, heavy reliance on government support and commercial real estate woes as hurdles to recovery.

Speaking less than a week after the Fed left interest rates unchanged at near zero, a trio of top officials -- San Francisco Federal Reserve Bank President Janet Yellen, Atlanta Fed chief Dennis Lockhart and Boston Fed President Eric Rosengren -- said the economy was still vulnerable.

"The strength and durability of the expansion is in question," Yellen said in Phoenix, Arizona. "High unemployment, weak job growth and paltry wage increases are a recipe for sluggish consumer spending growth and a tepid recovery."

She said it was not yet clear whether the private sector could carry the load once supportive policies fade.

The Fed chopped overnight interest rates to near zero in December and it has pumped more than $1 trillion into the economy to spur a recovery from the deepest downturn since the Great Depression. The White House and Congress also lent support with a $788 stimulus package of tax cuts and spending.

Last week, the Fed reaffirmed its commitment to keep borrowing costs ultra-low for "an extended period," and financial markets are listening to Fed officials closely to try to gauge when they may finally move to withdraw their economic support.

The latest remarks eased investor's worries about higher interest rates, helping support prices for U.S. government debt.

Lockhart said U.S. economic growth would be "relatively subdued" in the medium term.

"The situation is much improved, but there are sobering aspects of the economic picture," he told a conference in Atlanta, adding that data on bank failures, foreclosures, unemployment and personal income "continue to disappoint."

The U.S. economy grew at a 3.5 percent annual rate in the third quarter, snapping four consecutive down quarters and likely ending the recession that began in December 2007.

But labor market conditions remain dismal. The unemployment rate surged to a 26-1/2-year high of 10.2 percent in October, and a Reuters poll on Tuesday showed economists expect it to hit 10.5 percent in mid-2010 before subsiding. (Read Full Article)

The head of the Federal Deposit Insurance Corp. said Tuesday she's "very worried" that the nation's biggest banks aren't lending enough and warned the economy could take another turn for the worse without increased access to credit.

FDIC Chairman Sheila Bair said the FDIC's upcoming quarterly report would show that "not many large institutions are doing a very good job of lending." Instead, she said, some are taking advantage of near-zero interest rates by borrowing dollars cheaply to buy higher-yielding assets like stocks or commodities — a move known as the "carry trade."

"I don't see much money going out (from banks). I see a lot of carry trade," Bair told a banking conference in New York. "It used to be you take deposits and you lend out money. We'd like to see more of that."

Many banks have tightened lending standards following a wave of residential and commercial property defaults. Others say they want to lend but see little demand as consumers and businesses seek to pay off debt, not take on more.

The lack of lending by large banks is dangerous at a time when many small and midsize banks are teetering on the brink amid the economic downturn, Bair said. (Read Full Article)

    After two decades of looking the other way as banks made loans and mortgages to unqualified borrowers and made bets on when those bad loans would default (the derivatives market), the Federal Reserve Banks bailed out and are bailing out those same banks that are deemed "too big to fail", creating a corporate welfare monster that doesn't want to lend to small businesses or new start up businesses but rather use their Fed and taxpayer capitalized coffers to continue  speculating in the stock markets. As I see it, had the banks been allowed to suffer the free market discipline of bad businesses failing so good businesses can take their place, the US and global economy would well be on the road to genuine economic recovery, something the Fed really doesn't want. Central banks love the profits of wars, recessions and corporate welfare. Abolish the Fed!

tags: business  politics  the fed  corporate welfare  takebackamerica