Guest Post: Note To Fed: Giving The Banks Free Money Won't Make Us Hire More Workers

Tyler Durden's picture

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

Lowering interest rate and making credit abundant doesn't make employers hire more workers.

The Federal Reserve's policy of targeting unemployment is based on a curious faith that low interest rates and lots of liquidity sloshing around the bank system with magically lead employers to hire more workers. I say this is a curious faith because it makes no sense. In effect, the Fed policy is based on the implicit assumption that the only thing holding entrepreneurs and employers back from hiring is the cost and availability of credit.
But as anyone in the actual position of hiring more staff knows, it is not a lack of cheap credit that makes adding workers unattractive, it is the lack of opportunities to increase profit margins by adding more workers.
If the economic boom of the mid-1980s proves anything, it is that the cost of credit can be very high but that in itself does not restrain real growth. What restrains growth is not interest rates, it is opportunities to profitably expand operations.
What the Fed cannot dare admit is that in a crony-capitalist, globalized, State/cartel-dominated economy, there are few profitable opportunities, regardless of the cost of credit. Yes, there is a natural-gas boom in the Dakotas, but outside of energy plays the harsh reality is that the only way for most businesses to increase profits is reduce labor, not hire more workers.
The second survival tactic is to lower labor costs by recycling full-time, full benefits jobs into part-time or lower-paid jobs. Rather than pay insanely high healthcare premiums on full-time jobs, businesses lay off full-benefit workers and replace them with a mix of part-time workers who receive no benefits or contract workers who handle their own healthcare costs.
There is another way to recycle jobs to reduce costs: fire a $90,000/year employee and hire someone for $60,000 to do the same job. Mish has shown that virtually all the gain in employment since the start of the "recovery" is in the 55+ age group: Startling Look at Job Demographics by Age (Mish)
Older workers often complain that they have been replaced with "cheaper" younger workers who will work for less, but the real trend to is to hire higher-productivity workers for less pay. In most cases, as revealed by the above chart, the older workers are higher productivity for a number of self-evident reasons: they won't take maternity leave, they know their work well and have proven a work ethic that younger workers may not have had the opportunity to prove.
It is difficult to transition to a new career or get a job as an inexperienced worker for the reason that employers want someone who can be productive on Day One. Sadly, it is too costly and risky to take chances with on-the-job training or mentoring; it is lower-risk to find someone who can do the work immediately.
Older workers' healthcare insurance costs are skyhigh, but the solution is to hire older workers as consultants and push the costs of healthcare onto them. In many cases, older workers are covered by a spouse's insurance, so they can afford to take a job that offers no benefits.
The other trend the Fed cannot dare recognize is that cheap credit enables employers to reduce labor by investing in automation and software. If opportunities are scarce (and they are), or if the business is hanging on by a thread, then hiring more employees is the last thing an employer would do to boost productivity: the solution is reduce headcount and invest in tools that make the remaining employees more productive.
We can see this reality in the following charts: full-time employment has returned to levels reached 13 years ago, but median wages are lower, reflecting the "recycling" described above.
Meanwhile, labor's share of the non-farm private economy has fallen off a cliff, along with money velocity, which measures the relative activity of cash and credit:
So exactly what mechanism is the Fed trying to boost with super-low interest rates and massive liquidity (free money) in the banking sector? Answer: push businesses into high-risk ventures.

Federal Reserve Bank of Chicago President Charles Evans: “The investment climate seems to be one where people are increasingly understanding that very low interest rates on super safe assets are going to be around for a while. And if they’re worried by that they need to take on more risk - and taking on that more risk will help get the economy growing.”

In other words, the Fed's policy is to push for more mal-investment. There is no other way to describe the flow of money into risky, marginal ventures.
Note to Fed: there is too much of everything. Too many restaurants, too many apps, too many empty dwellings (19 million at last count), too many malls, too many nail salons. There is too much junk for sale everywhere, from retail outlets to online to jumble/garage sales. The developed world is awash in overcapacity in every sector other than a relative handful of special equipment/services (deep-ocean drilling rigs, etc.)
Pushing businesses to borrow money to gamble in risky ventures is precisely what happened in Japan in the late 1980s. With interest rates low and credit in abundance, bank reps went around to enterprises small and large begging them to borrow money for essentially any reason.
The net result: massive bubbles across asset classes and an overhang of debt that remains 20+ years later, as unpayable now as it was in 1992. That is the result of pushing enterprises into risk-on bets: bubbles and collapses.
What those with access to the Fed's free money--big banks and hedge funds--are doing with the zero-cost credit is invest in rentier skimming operations: buying 5,000 single family homes, buying $1 billion in apartments and homes to rent out, etc.

“It’s hard to find a private-equity firm on the planet that doesn’t have a strategy in this space,” Gary Beasley, chief executive officer at Waypoint Homes, said last week at the American Securitization Forum’s annual conference in Las Vegas. The Oakland, California-based company has bought homes in California, Arizona, Illinois and Georgia.

How many jobs are created by rentier skimming? Very few. Get the houses painted, hire a few handypeople to take care of maintenance and a few people to handle the property management.
The other way to make money with nearly-free credit is to chase risk-on assets, for example stocks. Why would any hedge fund or bank trading desk with easy access to the Fed's free money bother taking risks in the real economy which is burdened with massive over-capacity and sclerotic State-mandated cartels (healthcare, defense, etc.) when the easy money is in chasing assets higher?
How many jobs are created by chasing assets higher? Maybe the Fed thinks that high-end Manhattan restaurants will add staff to handle the influx of new money skimmed from the stock and bond markets, but if they think rentier/speculative skimming is going to add millions of jobs to the economy, they are delusional.

Perhaps if any of the Fed governors had ever operated a real business in the real economy, the board might have a somewhat better grasp on reality.

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GeorgeHayduke's picture

Continued socialism for the upper 5%, as usual. The more things disintegrate the more they stay the same.

FL_Conservative's picture

Someone needs to let Charles in on the secret that the Fed isn't doing this to try to improve the unemployment picture.  They're doing this to funnel money to the domestic branches of foreign banks who repatriate those funds (driving the EUR up) so that they can repay more of the LTRO borrowings, thus giving the market the "appearance" that the Euro banking system is healthier than it really is.  So let's cut the horseshit and call it what it is.

markmotive's picture

The American Middle Class is dead. We're left with those living paycheck to paycheck and the 1%.

The system depends on the survival of the elite. So the theory is that you support all by supporting the 1%. Yup...true shit. Unfortunately, it turns out the 1% who run this country wasn't really looking out for anyone but the 1%.

philipat's picture

I think that being strangled by regulations and the upcoming burden of Oamacare also deserved a mention as an important deterrant to hiring.

Just Ice's picture

Whee...we were able to pay MasterCard by borrowing off Visa.  Look what fine shape we're in!  Really.  lol

blindfaith's picture

And while we are at 'cutting the horseshit and call it what it is"  lets not forget your Florida Governor.

vmromk's picture

The answer is simple, END THE FED.

Except the American public is too brainwashed to recognize how badly Bernanke and company are royally fucking them.

holdbuysell's picture

Sadly, the American people don't know what the Fed is; they don't understand how their money system works; they don't understand what money is.

Incubus's picture

Ask someone if they know how fractional reserve banking works, and they give you a vacant stare. 

But hey, tell 'em to check out the ass on my avatar and their eyes will light up.


And you think I'll feel sorry for them when TPTB start culling?  Live like a sheep, die like a sheep.

michael_engineer's picture

They are the "Well Fed" or as I like to call them, the WFed.

Remington IV's picture

Meanwhile , the Russians sold $ at $1.60 / € in  July 2008 --- Stupid Sputniks

A Lunatic's picture

Anyone who still believes the FED is trying to help the economy is either terminally stupid, or a paid propagandist.

blindfaith's picture

Non sense...non sense, I say.  This is trickle down you leg economics the even Reagan would go for.  Look at it this the money gets diluted there will be more of it and so you will need a shovel to load it into a wheelbarrow to go to the store.  See, shovel ready projects do exist !  The banks are only helping to get that money into your hands so you will have something to shovel... that's all.  It is all about the flow.

km4's picture

bingo and this is a MUST SEE or read transcript

Matt Taibbi on Big Banks’ Lack of Accountability

and good post here

Barack Obama, Wall Street Co-Conspirator?

koncaswatch's picture

Malinvestment rewarded; work and wealth building is stifled. That's the plan, that's why.

espirit's picture

Chicago and Detroit, most of Kalipornia and a host of others. Best to nuke them and start over.

Decimus Lunius Luvenalis's picture

We talk about the military industrial complex often, but we don't talk about the liquor industrial complex.  Maker's Mark is now reducing its alcohol content from 90 proof to 84 proof.  It turns out creating economic malaise has been the liquor industry's panacea all along.  There's so much demand for delicious, and I mean utterly delicious, bourbon that they need to reduce fermenting time in order to meet demandl  I'll let you know what effect this has on my realization that I paid far, far too much for my JD and MBA.  My current thoughts are that this is simply the latest of a never ending round of evidence that the education bubble will take the cake.  At least houses have copper and 100 square feet of dilapidated land surrouding it.  My paper diploma however....

espirit's picture

Save the MM for the good times, use Evan Williamsbanzai7 for the rest.'s picture

my guess the low rates and lots of liquidty in us banking system is so the banks can buy US DEBT


as no one wants it anymore..(

PUD's picture

Business is borrowing to buy robots so that they can eliminate yet more carbon units. Irony is those carbon units are also their customers. 

masaccio's picture

A basic physics lesson for the Fed: you can't push on a rope.

WmMcK's picture

You can't get any work from the act, at least.

Seasmoke's picture

give me lots of money and i am keeping it for myself.......MAYBE i will hire friends and family ONLY

you enjoy myself's picture

"The Federal Reserve's policy of targeting unemployment is based on a curious faith that low interest rates and lots of liquidity sloshing around the bank system with magically lead employers to hire more workers.  I say this is a curious faith because it makes no sense."

re-examine your presumptions.  then it makes perfect sense.


dwdollar's picture

Anyone else have inside scoops on local banks or credit unions? The credit union my wife works at is starving for loans. They're basically throwing money at people right now.

chubbar's picture

Note to Charles Hugh-Smith, from the FED: We don't give a fuck! We aren't here to help you with employment or any of the other fucking crazy ideas you seem to have! We exist to serve the cabal of bankers who set us up to suck the life blood out of your country. Dumb ass. Get back to work!

10mm's picture

Note to Guest Post,The Fed does not give a shit about workers.

NOPOMO's picture

Ben thinks he knows it all.  Our Politicians and Economist are nothing more than self serving Jackasses.

buzzsaw99's picture

Like they don't effing already know that. They don't care.

IamtheREALmario's picture

The question for me is not what the Fed and international banks are doing, but whether it is by design. To me, it seems obvious that there is more than enough history of banking (and central banking in particular) cause and effect to understand exactly what should happen if the banks create an infinite amount of free money. The people will become relatively poorer and will have to put more of their assest toward the consumable necessities of life, such as food and less toward hard and productive assets, such as real estate. This has happened time and again through history.

When this happens, the banks use their infinite amount of free "created out of thin air" money to buy up the bulk of the available hard and productive assets, first at a premium and then when no one else can afford them, at a discount to their value, relative top consumables. I forget the exact Thomas Jefferson quote, but it essentially said something to the effect of the following: "If we allow central banks to be created then first by inflation and then by deflation the people of the country will wind up being slaves in the country their forefathers founded". It is clear that Thomas Jefferson knew what central banks do and he must have known this from experience or from studying historical central banking efforts. It is EXTREMELY unlikely that Bernanke and the rest of the technocratic bankers and their cronies do not know this is as well.

So, when Bernanke says that he is trying to fulfil the Fed mandate of low inflation and high employment, he is lying. But he says it frequently enough and loud enough that people actually believe it ... or at least tend to believe that Bernanke is just incompetent (as CHS seems to believe) and is not fully aware of what he is doing and the predictable effect. I think people need to realize that the Fed actions are intentional, the effect is intentional and the fact that they are lying about the actual inflation rate and many of the other statistics is simply more proof that their intent is to deceive for a purpose that will NEVER benefit the people in general. To believe otherwise is simply naive.

NOPOMO's picture

When investing becomes by the Banks for the Banks it is no longer a place for ordinary investors.  Let the Banks eat their own vomit.

We should be demanding American Justice regardless of any economic blow back.  Capone would be proud.

sasebo's picture

Oh shit, no inflation.


The fed lends money to banks at low interest rates. The banks buy tb from treasury. The fed creates digital money to buy the tb back from the banks, giving banks a profit.

The treasury gives the money to those who voted for them. These dumb assholes spend the free money on goods produced by the economy, keeping the economy going. Keynesianism you fool.

The fat ass ceo's take their profits given to them by voters on welfare & buys tb's & stocks. And this money goes back around -- velocity.

The cheap money lent to banks by fed is used to inflate assets (hint: digital & paper money are not capital -- stuff is capital). 

So the standard of living of the bankers & ceo's go up with inflated asset prices ---- working peoples standard of living goes down. And the economy keeps producing the same amount of real stuff. More nominally.



NoDebt's picture

"Note to Fed: there is too much of everything. Too many restaurants, too many apps, too many empty dwellings (19 million at last count), too many malls, too many nail salons. There is too much junk for sale everywhere, from retail outlets to online to jumble/garage sales. The developed world is awash in overcapacity in every sector other than a relative handful of special equipment/services (deep-ocean drilling rigs, etc.)"


It was fake on the way up, and it's still fake no matter how much (printed) money you throw at it.  If you think that waiting for population to grow into using that overcapacity will work, you're backing the wrong horse.  You'll be out of runway before it balances.

Inflating the nominal doesn't change the real.


Law97's picture

By "targeting" unemployment, which will never come down due to Fed policy, the Fed can keep printing indefinitely. 

Everybody knows the real purpose of Fed policy is to reflate the stock market and financial assets in general, NOT to reduce unemployment. 

HowardBeale's picture

On the other hand, assassinating every Wall Street banker would have a fabulous effect on the economy and unemployment, as a majority of the wealth stolen from The People would suddenly be transferred to their inbred offspring (creating an iheritance tax surge); and  given that the "third generation squanders what the first steals (from The People)", We could surely expect the velocity of money to pick up as the one-eyed, hump-backed grandsons and granddaughters of the original Reagan-generation of kleptocrats frantically attempted instant gratification by buying everything that existed; go long porn and hookers...

As a policy recommendation, in order to lower the unemployment rate: Kill anything that looks like, smells like, is, or has as simple an agenda ("Fuck  you, everything is mine.")  as Lloyd Blankfein. Don't get petty and reject someone just because they are only working in the building...

Atomizer's picture

Title correction: Fed: Giving The Banks Free Money Will Make Us Lease More EBT Workers

Nancy Pelosi: Unemployment Benefits "Creates Jobs"


The Key newspeak word, Leasing labor force. See how easy it is? LOL

tempo's picture

The FED knows Robots are eliminate millions of jobs. Robots don't need health care, days off, retirement and have no legal rights. The FED knows all this but has no alternative but to keep on increasing money supply in order to orchestrate a declining std of living rather than admitting the promises are lies. Its just the least bad alternative. Maybe we will get a couple more years before the consequences start accelerating.

Iocosus's picture

Why doesn't anyone see their main intention is to bring the world to its knees via credit?

Read Red Symphony

Aaron Burr's picture

Ok seriously people... Is there any one else giving it to you straighter or more timely than Charles? Bow to the master, bitchez, and send him all your money now! I'm serious---send him ALL your fucking spare change right now because you are not worthy! The most brilliant thought you ever had he had when he was two (thank you Danny Boone 4 the line!) There are fewer and fewer you can trust in this world--- so many fucking tools --- Charles is one--- and i would run off with that fucking Dianna Olick from cnbc--- so smart and hotter than a popcorn fart! But her and Santelli are the only thing worth a shit there. Bobby Wiell from bloomberg-- but Charlie here is the MAN!

Lord Of Finance's picture

Giving banks free money will certainly not lead to more workers, but it will lead to hidden bank balance sheet record profits.



  Now I will not inSINuate that this is the true purpose of QE, in much the same way that saying, "burn in hell, all you who ARE the banking cartel", does by no means insinuate their codemnation.






smart girl's picture

What is the mean? As mean, I mean mathimatical mean.

Lord Of Finance's picture

Its street slang, where I comes from, smart tart.


 as also in;


 'This comment post forum, is by no means a grammar class.'

yrbmegr's picture

When population stops expanding, the economy will stop growing.  We will need to forget about absolute growth in real GDP and look at GDP per capita.  Global population is expected to stop growing in 50 years or so.  Growth here might stop before then, and the economy might stop growing even before then.  Thus, we might be nearing a situation where nothing, but nothing, will get the economy to grow.

TeddyBear's picture



Yes. Think Japan.


Still Japan was a good place to live for last 20 years but for the nuke thing.


bunnyswanson's picture

Here is a 10 minute YT clip that enforces your point.

EconomyCommodityNews (2013)

TeddyBear's picture




I have less workers now than in the 80s Because I do not need the tax deductions to get in a lower tax bracket.

If taxes went up I would hire more for the tax deductions. SIMPLE....


But don't worry we will have a worker shortage in a few years.

New hires now are not as good as same people in the past. They steal my time texting & web surfing.

A sorry lot they are:(


Lord Of Finance's picture

We will have an even bigger work shortage in a few years, but there will be no shortage of dollars in circulation.

MedicalQuack's picture

The president closed his jobs council so until they finally figure out we are out of balance wiht tangibles/intangibles and give some relief to the medical device business, who do create jobs, we are stuck.  So many are bliss but once they try everything else they are going to have to address math as someone else called it "Weapons of Math Distruction"...Cathy O'Neil said that, former quant a few years ago at DE Shaw. 

60 Minutes had a good show on tonight about the flawed data in credit reports and this substantiated what I have written about with my series called The Attack of the Killer Algorithms.  I don't get it why they can't see this with server 24/7 running data making decisions and moving money as not being the top area to look at for fraud and errors. 

Hopefully this will make a stronger case for my campaign to license and tax the data sellers so someone has some authoritiy and any laws of course need an modeled IT inrasttrucure to regulate other wise we have laws with no balls.  1 out of 5 credit reports are wrong, watch the video as Steve Kroft goes right to India when he calls for support and he also talks to the young customer service people who are only able to give a credit appeal a "code"...the creditor is always right..what a rip.

Billions are made selling data and we could license and tax and take that money and fund the FDA, NIH and other healthcare agencies.  They don't give a crap about errors and again I have watched this build and look what Ticketmaster did with the Presidential Inauguration, link at the link below..they made a mistake and put the tickets on sale early and all the regular clients were screwed and they did nothing about it.  The damnn data model is broken here as they won't spend the money to repair or fix their flawed data and to me that's illegal.

Back on topic with taxing and licensing and regulation on data selling it will make it more attractive to look at some tangible companies which where we need to put our money as that' where the jobs are.  Right now companies can hire a few geeks, write some algos, mine data and make millions so even if they do produce products why would they build factories and hire people when this data selling scam is so easy and nobody cares about the consumer until you are one:)  Future looks pretty good if one is an algorithm but not so for humans who need jobs and we need more tangible manufacturing in the US, so that's the key to jobs.