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Hey Fed, I Have a Bridge to Sell You

NEW YORK (TheStreet Ratings) -- The Federal Reserve Board's announcement that interest rates will stay near zero and quantitative easing will continue for the foreseeable future should not have come as a surprise to anyone. The surprise would be if the latest round of mortgage security purchases were any more successful in jump-starting the U.S. economy than the prior rounds.

As the country's central bank, the Federal Reserve should be loaning money at very low rates directly to municipal taxing authorities for the building of roads, bridges, libraries and schools. It makes no sense to encourage the over-supply of housing when the road and bridge infrastructure between those homes is crumbling.

Unlike purchasing mortgage securities, originating new municipal debt will directly create good paying construction jobs. This works better to achieve the Fed's statutory mandate of maximum employment than keeping interest rates low for companies, flush with cash, that don't want or need to borrow until customer led demand for their products returns.

This move would not be popular with the banks such as Wells Fargo (WFC), Citibank (C), JPMorgan Chase (JPM), State Street (STT), and U.S. Bank (USB) which are among the largest originators of municipal debt.

Fed-haters, who see government as the enemy, and Tea Partiers, with no interest in expanding the economy if it means government-created jobs, would join the banks in opposing this plan. Proving them wrong is another good reason to give this a try.

-- Opinion of Kevin Baker in Palm Beach Gardens, Fla.

Kevin Baker became the senior financial analyst for TheStreet Ratings upon the August 2006 acquisition of Weiss Ratings by TheStreet.com, covering equity and mutual fund ratings. He joined the Weiss Group in 1997 as a banking and brokerage analyst. In 1999, he created the Weiss Group's first ratings to gauge the level of risk in U.S. equities. Baker received a B.S. degree in management from Rensselaer Polytechnic Institute and an M.B.A. with a finance specialization from Nova Southeastern University.

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