The problem with the U.S. government's stimulus efforts to create jobs, and the Federal Reserve's quantitative easing to foster full employment, is that banks are the only direct beneficiaries.
There's just no good pool of jobs being formed from the trickle-down effect that first bathes bankers in bonuses and then showers shareholders with buybacks and dividends.
There is a better way.
And, in spite of the details, which additionally involve two necessary but minor structural changes that can be accomplished with the stroke of a pen, there are only two primary steps we need to take to create good-paying, long-term jobs and crank up economic growth.
Step 1 to Growth and Better Jobs
First, the two minor structural changes, which aren't minor if you're a fat-cat banker or crony capitalist, are:
1) Eliminate the Federal Reserve's ridiculous "dual mandate"
2) Enact the 21st Century Glass-Steagall Act and simultaneously break up all the too-big-to-fail banks that would still dominate the landscape after separating commercial banking institutions from investment banking shops.
[Please listen to my interview last week with Senator Angus King, a co-sponsor of the 21st Century Glass-Steagall Act, along with his cohorts, Senators Elizabeth Warren and John McCain. You can listen here.]
The Fed's dual mandate is to maintain "stable prices and moderate long-term interest rates," as well as to "promote effectively the goals of maximum employment." It was bequeathed to them in 1977 by Congress and a president and his administration who couldn't manage the country's downward economic spiral.
Besides the disturbing abrogation of Congress' constitutional duties, tasking the Trojan Horse Fed and its belly full of soldier bankers with being a receptacle for the government's outpouring of debt and simultaneously tasking it with managing GDP growth to engender trickle-down (from the banking fountainhead) jobs growth is a testament to how government emasculated itself.
All this became possible and desirable for our government when the Fed showed its prostituting backers their secret playbook.
By rigging the yield curve to slope steeply upward, the Fed manufactures profits for its constituent banks. As long as the interbank lending market is fluid and short-term borrowing rates low, banks can finance buying government issues (which no matter how low their yields, offer a positive carry and good return) as well as mortgage-backed securities. And the Fed can take in worthless collateral (in times of need) to keep banks afloat when they're insolvent and let banks run full-out flush at all other times.
That's the program. Benefit the banks to benefit the economy, which will foster job creation.
It starts with the banks and ends with the banks. That's the problem. Banks and financial services have become too big a component of GDP and too powerful. They are the tail wagging the dog, which is what our economy has become.
We need to do away with the Fed's dual mandate and break up the banks to make them serve free-market capitalism the food it needs to grow — namely capital. Banks should be reconstituted as utilities providing power to the economic grid, as opposed to being the owners and lever-pullers manipulating the grid.
That's primary goal number one.
Step 2 to Fixing the Economy
Primary goal number two is getting the president and Congress to create stimulus programs to directly impact jobs growth in the five legs of the economy that will serve the whole country's growth dynamic.
The programs have to include both direct support mechanisms and tax-advantaged "incentivization."
The five legs are:
- Revamp education and training by: modernizing delivery methods, lowering costs, radically reconstituting student loan programs, and expanding and making access easier;
- Rebuild, revitalize, and expand America's infrastructure;
- Make America energy independent;
- Protect and promote America's "knowledge intensive" industries: technology, defense systems, complex machinery, autos and airliners, medical devices, medicine, and environmental safety applications and green technology;
- Safeguard and manifest the myriad opportunities in big-data analytics.
A two-pronged approach to fostering solid, sustainable long-term economic growth is easily achievable.
If we first unclog the free market by flushing manipulative banks and a regime-fostering Federal Reserve's dual mandate power down the drain, and simultaneously get government to serve the people by directing our tax dollars into straightforward, transparent, privately managed programs that create good-paying, long-term jobs and career opportunities in areas that address our 21st century needs, we can rebuild America.
This is America's destiny. Now, all we need is an honest Congress and a hard-working president to invigorate our capitalist backbone and not enslave us in a socialist sinkhole.
About the Author
Shah Gilani boasts a financial pedigree unlike any other. He ran his first hedge fund in 1982 from his seat on the floor of the Chicago Board of Options Exchange. When options on the Standard & Poor's 100 began trading on March 11, 1983, Shah worked in "the pit" as a market maker.
The work he did laid the foundation for what would later become the VIX - to this day one of the most widely used indicators worldwide. After leaving Chicago to run the futures and options division of the British banking giant Lloyd's TSB, Shah moved up to Roosevelt & Cross Inc., an old-line New York boutique firm. There he originated and ran a packaged fixed-income trading desk, and established that company's "listed" and OTC trading desks.
Shah founded a second hedge fund in 1999, which he ran until 2003.
Shah's vast network of contacts includes the biggest players on Wall Street and in international finance. These contacts give him the real story - when others only get what the investment banks want them to see.
Today, as editor of Hyperdrive Portfolio, Shah presents his legion of subscribers with massive profit opportunities that result from paradigm shifts in the way we work, play, and live.
Shah is a frequent guest on CNBC, Forbes, and MarketWatch, and you can catch him every week on Fox Business's Varney & Co.