IMF’s Lagarde Has Doubts on US Labor Market, Must Not Be Enough QE

by on April 7, 2014 11:50 am BST

The International Monetary Fund (IMF) Managing Director Christine Lagarde has doubts on the labor market in the United States, suggesting it could be much stronger if certain drivers were in place.

In reference to the non-farm payrolls, released last Friday, Lagarde said the 192K jobs added in March “could be and they should be higher,” during an interview on the Fox Business Channel. “What is holding us back is probably a degree of uncertainty, a lack of confidence, the fact that a lot of companies are investing into themselves more than actually investing into capacity and in job creation,” she continued.

Lagarde is a known supporter of modern day Keynesian economics, as most central bankers are. She believes that central banks are not doing enough to lift the globe out of the doldrums. As first introduced by John Maynard Keynes in 1936, Keynesians believe that private sector decisions lead to inefficient macroeconomic output and must be “guided” by public sector policies.

Originally, Kenyes believed the two key factors for the US to get out of the Great Depression was through low interest rates and investment into infrastructure that would create job infrastructure. However, today’s central banker just buys astronomical amounts of debt in hopes that it is reinvested into the economy. And, it’s not.

The Federal Reserve has increased their balance sheets from $800 billion (before the 2008 crisis) to over $4 trillion. Companies have record profits, highest in nearly 100 years. Yet, the unemployment rate is artificial low do to job market slack and baby boomers retiring.

Then again, I cannot put all the blame on irresponsible monetary policy. The stalemate in Washington DC has hindered the economy in equal parts. There is no fiscal policy to put the central bank’s efforts into work. The US has some of the most complicated tax codes in the world, as well as the highest corporate income tax in the world. Fiscal policy does not give companies a reason to invest in job creation, so, according to Lagarde, invest in themselves.