NEW YORK ( TheStreet) -- Pressure mounts on the Federal Reserve and European Central Bank to avert another recession, but neither can accomplish much without their governments pursuing more competent economic policies.
In the U.S., unemployment hangs above 8% and a second recession threatens, because too much of what Americans spend goes abroad without returning to purchase U.S. exports.
Demand for U.S. products is burdened by huge trade deficits on oil and consumer goods with China -- totaling about $600 billion each year.
Congress and the president have significantly curtailed production of oil offshore and in Alaska, doubling the oil-import deficit. And both refuse calls from economists across the ideological spectrum to force China to stop manipulating its currency, imposing punitive tariffs on U.S. products and subsidizing exports.Consumer and investment spending are flagging, but the Fed has few levers left. A statement that it intends to keep short-term interest rates near zero beyond 2014 would have little impact on investor psychology -- already, few expect the Fed to push up rates in the foreseeable future. A new round of bond purchases to push down long-term Treasury and mortgage rates are on the table. However, over the last several months, investors have moved cash from risky European government and corporate securities to U.S. bonds. The 30-year Treasury and mortgage rates are now near record lows, preempting the effectiveness of any additional Fed measures. Boosting U.S. oil production and earnestly confronting Chinese mercantilism would boost demand, double GDP growth and create five million jobs, but those actions are beyond the Fed's purview. ECB President Mario Draghi has promised to do whatever it takes to save the euro, but the architecture of the single currency is even more flawed than policy in Washington. Like Florida, Spain boosts a significant resort industry, and when the recession hit, real estate values plummeted and loans failed much more than elsewhere. The Fed stood behind Florida banks, and Washington continued to finance Social Security, Medicare and unemployment benefits. Spain's central bank can't print money, and Madrid was forced to borrow more than capital markets judged prudent to shore up its banks and maintain its safety net.