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tv   Inside Story  Al Jazeera  September 20, 2013 5:00pm-5:31pm EDT

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cooler. >> i'm tony harris. here are the day's top stories. the house pas and senate have ul september to reach a budget deal. blackberry slashed of a it's worworkforce, and reports a quarterly loss of $1 billion. iran's new president said he wants to construct a dialogue with the west. and in a "washington post" op-ed rouhani said that they need to seek win-win outcomes rather than force to combat terrorism.
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the environmental protection agency is imposing carbon limits that would affect coal power plans. coal plants would have to add expensive new technology to meet the standard. they're expected to challenge the regulations in court. if you would like the latest on any of our stories go to we've got another full rundown of the day's news coming up at 6:00 p.m. eastern time. inside story is next here on al jazeera. >> the federal reserve plays an important roll in america's economic recovery in this week says we're not better yet. you're watching "inside story" from washington.
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>> hello, good to have you with us. for the economy to recover as it has struggled to do so since the wall street collapse five years ago this week there has to be confidence small businesses need to be assured they can actually afford to hire. consumers need confidence to spend their money, and investors need to feel that their bets will pay off. the federal reserve expressed little confidence or at least a cautionary concern that the economy is not healthy enough to tap down the stimulus effort. >> conditions in the job market today are still far from what all of us would like to see. >> a reality check this week from the chair of the federal reserve ben bernanke as he
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announced a quantitative easing three. a molly $85 billion asset buying program meant to stimulate economic growth and hiring by holding down interest rates. >> nevertheless, meaningful progress has been made. >> reporter: but not enough that the fed can taper or scale back on the program, expressing concerns about national confidence. >> if the day a data con confirr outlook and we believe the three-part test that i mentioned are, indeed, coming to pass, then we could move later this year. >> reporter: but some small businesses may be running out of time. "inside story" visited tacoma park, maryland, to see if pouring any more money in this program is having any affect of turning the economy around park
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florist has been in the family for generations, one that she has owned for ten years. she remembers the hard time of the recession as if it were yesterday. >> i would go out to meet with restaurant owners, managers, hotels, all of those big spending order accounts. they had been saying no. flowers? we don't need flowers. we have no extra budget. we're cutting budget now. >> reporter: just a few years ago her bus relied heavily on the loyal customers who bought from the shop regularly. today times are improving, but slowly. she wouldn't say she is confident. >> are you struggling to get by? >> yes, i should say because i would like to hire more people, but i cannot afford that enough. >> reporter: and gene is not alone. next door the magic carpet shop,
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she works to keep her bu busines from closing. >> have you gone to the banks to get help. >> it's difficult to get money from the banks now. if i feel confident about paying my bills then i would feel better. >> reporter: while the government continues its push to get the economy back on track, americans still feel an overall disconnect. according to a recent pew research poll 6% of americans felt government policies have helped small businesses. nearly a quarter of those polls said policies have helped a fair amount. and 67% felt small businesses have not been helped much or at all. though the federal reserve acts independently on monetary policy, the dysfunction in washington is a factor that is running in the background. congress is on a collision course on the budget in the
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coming weeks. as bernanke's term runs out in early 2014 the debate of the role of the federal reserve in the american economy is now front page news. >> a lot of developments this week. we certainly have a lot to talk about. joining us to discuss the federal reserve decision and the central banks role in the economic recovery are a professor of international finance and business at george washington university. she serves on the board of directors at the international trade and finance association. from new york, chief economist of moody's capital markets group. he'he is his analysts appears in moody's credit friends. and director of the financial studies at the cato institute. good to have our panel with us today. thanks for being with us. john, i want to start with you and talk about this 67%
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disconnect if you will. many americans feel these programs, quantitative easing are not helping the economy, and mainly perhaps because they don't know what quantitative easing is. in theismest of terms, what is quantitative easing and what was it meant to do? >> by quantitative easing we're talking about the feds buying treasury bonds in mortgage-backeed securities for the purpose of putting downward pressure on long-term borrowing costs. >> mark, the bank said it would phase out this program once the economy improved. so here we have the continuation of this program. what does it say about the accurate state of the economy. >> it says that the federal reserve does not have confidence in the overall economy. particularly the labor market. they're signaling that it will
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be months if not years before we get back to a labor market. >> the goal was for more people to buy, buy homes, invest in businesses. who truly is benefiting from this program? >> well look, the overall economy is benefiting from this program. yes, liquidity is passed into the banking system and the hope is that the banks lend to individuals and small businesses. has that happened at a rate which would like it to, no. it's slower than expected, that's why the decision to continue the stimulus is a good one. >> did it create jobs? are we seeing growth here? >> well, i think we're seeing more jobs than what would have been the case if there was no quantitative easing. the benefits of quantitative easing are not easily discernible. but if we talk way this ex-soared measure by the federal reserve. the economy would be significantly worse off. >> do you agree with that statement, mark? >> well,erfirst let's start with
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what i agree with. it's hard to tell. where i would disagree, significant is a subjective word. i don't think we would be a whole lot worse off but then what would the monitory policy look like. i think for instance if monitory policy--the fed have done things that contract as well the fed has paid interest on reserve to banks which has dissuaded banks from lending. i don'i don't think it's fair to define it as purely contributory. i describe it as schizophrenic. you have a policy where you weren't paying on the reserves, i think we would be the same where we are now. we're in a situation where the fundamental problems facing the economy is not driven by lack of liquidity but particularly to the labor market. >> if the economy were still so shaky why was the fed expected
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to reduce qe 3? >> ben bernanke made a statement some months ago that this program has to end. he may have been indicating next spring. that made the market extremely anxiety ridden. we know that the economy is not back yet, and his eyes are on that labor number, the employe employeement number. we know that there is hidden unemployment in the system. we know there are people who want jobs who simply gave up looking for jobs. this is not an easy fix just because we hit the marker for unemployment. >> why do you think there is such a disconnect among the american people. >> well, i think that they would like to see loans to small businesses happen in a speedier fashion. to see the banking system
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recover and now they would like to see themselves recover. there is a perception that the banks are benefiting from this, and wall street is benefiting from this, and clearly they have, but this takes time to filter down. it's all about confidence. that's why this liquidity is is important. >> things take time, but we started this rounds in 2010. it's been a number of years i think it happens within a year or two at most. and at some point you're just really not getting the same bang for your buck. i think small business lenders, they're going for the loan or they're not getting it. banks have a trillion and a half of cash sitting on their balance sheet. what the fed tries to do is push that liquidity in the system. well, it's in the system but it's not getting out of the
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banking system. there are a variety of reasons for that. in the down economy, i'm sure that everyone who was rejected for a loan feels that they were qualified for it. some that have is true, some of it isn't. it's not clear that it's driven by the economy. we just need to increase the over all demand of the economy. it's important to keep in mind that per capita spending today is higher than it was at the peak of the bubble. people are spending. it's on different things. it's not clear how running up house prices is going to make us go out and spend a lot again. i worry that the fed is faced on just trying to recreate the last bubble rather than rebuilding the fundamentals of our economy.
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>> one of the reasons we're not getting the bang for our buck is simply because the economy is burdened by an unusually high level of regulation. this is a problem forbearance. we'r--for banks. banks are discouraged from providing mortgage debt comparable to what they did prior to the financial crisis. as a result despite these efforts by the federal reserve as i said earlier by fiscal policy, we find that the u.s. economy limps along. there are structural problems with the u.s. economy, the u.s. labor market that became apparent. not for the recession but rather during the recovery. until the structural problems are efficiently resolved this is
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going to remain the worse economic recovery since the second world war. >> at what point do you pull the trigger? we'll continue this conversation coming up. also when we return we'll talk about the federal reserve and the role it plays in righting the economy. stay with us. on august 20th, al jazeera america introduced a new voice in journalism. >> good evening everyone, welcome to al jazeera. >> usa today says: >> ...writes the columbia journalism review. and the daily beast says: >> quality journalists once again on the air is a beautiful thing to behold.
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>> al jazeera america, there's more to it.
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>> welcome back to inside story. we're talking about the economy and the federal reserve. with us, the professor of international finance in business at george washington university. chief economist of moody's market group. and director of finance regulation studies at the cato
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institute. what is holding the economy back? >> well, lots of things. i think confidence is one of them. markets are still nervous. people are nervous. we're spending but very casually because we're afraid of what is happening down the road. we are recovering, and it is a very slow recovery. we talked about quantitative eyeasing. when interest rates are close to zero, it is the only way to stimulate economy since we've got a complete government freeze in congress. nothing is moving on that side. so ben bernanke is the only game in town right now in terms of moving the economy forward. >> i spoke to a number of business owners who say they simply can't get any bank loans. how do you respond? >> well, one of the reasons why is this the case is because washington has not been clear
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you as to the form of financial regulation. or washington has proceeded in a middle eastern that has shut off the supply of bank credit to smaller businesses. >> the role of the fed during the 2008 crash, you know, i think a lot of public questions about the fed, i think most people could never have imagined the bail out of aig, and i think it was a real shock. but buy and large beyond that, monetary policy, we saw this at the dot-come bubble and we saw it in the earlthe early 90s.youd
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into recovery. you're still doing the basic open market of injected liquidity into the system. i don't think the over all role the fed has the monitory hand on the economy has changed much. i think their assistance to financial institutions has been a very big change in policy. of course we tried some different things. but again, it's really the very same spirit of what we tried in the past. >> let's talk about the plan b here. if we agree we need to strengthen the economy, quantitative easing has not really done the job. what is next? what is the alternative, mark? >> if you look at at 2009 we started to see spending in the gdp start to recover. not as strong as we would like, and it was moving in the right direction, but the labor department was not th. you try to turn a construction
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worker in a nurse to move away from the jobs of the pass to the jobs of the future. whether its training or how to facilitate that is a very big question. i think we need to look at burdens of businesses to hire certainly there is no obamacare cliff. a lot of these things start to kick in. we need to look at the regulatory side of that. raising the image wage 40% during the recession is probably not a good policy. trying to make it easier to hire. one of the things that we did that made sense was the payroll tax credit. it has to be a focus of adding flexibility to the labor market. making it easier to hire and you got to make it easier to fire. exit costs and entry costs and we have to give flexibility to the labor mark. >> people are starting to buy, so at what point do we pull the
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trigger? >> i think housing is moving higher, we don't want to lose sight of the fact that the over all level of home sales is just up slightly higher than it was the pre-bubble years. so we've had probable. but long term, the progress has been inissue. until we reach that point where there is a fuller participation by military class americans. we had news on existing home sales. the good news unit sales are up 13% from a year ago. the not so good news is that for those homes that were purchased entirely with cash, those homes are up 34%. the remaining home sells that use mortgage debt, that is homes
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purchased by typical middle class americans that gain was a very small 5%. that's not good. we want to see middle class america participate in this housing recovery before we can feel confident before taking away quantitative easing. >> we'll talk more about the federal reserve after the break. millions who need assistance now. we appreciate you spending time with us tonight. up next is the golden age of hollywood going golden but elsewhere. why l.a.'s mayor has declared a state of emergency for the entertainment industry there. next.
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>> every sunday night
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you. >> welcome back. we're talking about the federal reserve and our economy. with us, the professor of international finance and business at george washington university. chief economist at moody's capital market group. and director of finance relation studies at the cato institute. a week ago we thought it would be larry summers who withdrew his name. what do you make of his withdraw? >> well, this was not entirely unexpected. he's an extremely polarized figure. he's extremely confident but he is polarizing. i think he anticipated a
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controversy of perhaps his nomination, and he backed away. it's surprising in the sense that it happened early on in the game. but the controversy surrounding it, that's not surprising. so now janet is the only game in town. she holds the number two job at the fed and has done since 2010. >> what do you make of the prospect of yellin. >> i think she's quite suitable give her emphasis on labor economics, she's going to be sensitive to chronically high levels of unemployment and under employment in this country, and in the economy, the inflation, even real estate price inplacing is going to be limited as long as incomes grow at the slowest pace of any recovery since world war ii. >> i spoke to a number of
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business owners yesterday who had no idea who the current chair is, that begs the question why should we care who gets the job? >> well, we certainly should care but i suspect the typical american could not name the chief of the supreme court either. the whole summers-yellin debate was really like baseball among fed watchers. the chair has a tremendous amount of influence on the economy, on the path of the economy. we certainly have seen in my opinion is that the monetary policy we had a decade ago contributed to inflating the housing bubble. so when you get monetary policy wrong, lots of bad things can happen that affect all of us, that affect labor mark and our wallet, so i think it's important that you get someone there. i say someone who is a former staffer on the bank committee who worked on fed nominees,
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there has been a shocking lack of due diligence on the part of congress in terms of actually kind of looking at these nominees in a serious way. most of the time they're just really run through without very little questioning in a serious manner. i hope in the future we spend a fair amount of time on this. i think it's important for the public to understand monetary policy and i don't think that education has happened. >> we have ten days to hammer out a budget, how does that go into the mix? >> the nomination of the fed chair will go to the committee and be accompanied by some other nominees as well. the banking committee is not corp of the budget negotiations so you could have a budget debate on the floor of the senate, and the banking community can still have it's hearings the same day. you know, it push it is back, the cycle, a little bit. i think the president held off naming anyone because of syria,
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and because of the budget negotiations but once that name is out there, the banking body can get it job doing. >> does anyone care what washington is doing? >> of course they do. washington is very interested in regarding how policies in washington affect prospects for business sales and how it might effect profitability. one of the surprising aspect was be how little the sequester has mattered that far. and the work that we do here at moodies, what i come across is that the only credit rating down grades seem to be related to the sequester are those that apply to smaller companies that have considerable exposure to defense. the fact that it has been so well contained helps us to
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understand why it has not been a bigger issue to our voters. >> what needs to happen to get the economy back. >> timing is everything right now. trying to assess if it's a public down the road and when to slowed down the qualitative'sing. the second step then how do you unwind all the positions on the fed's books and how do you go about doing something like that. >> we'll have to leave it there. i want to thank our guests for joining us today. you can keep the debate by logging on to our facebook page or send us your thoughts on twitter. thanks for joining us.
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