Banks might be the source of 19 million new jobs – if they spend $1.4 trillion of their cash.
According to a study conducted recently by the Political Economy Research Institute [PERI] – an independent unit of the University of Massachusetts – if banks spend $1.4 of their $3.6 trillion cash stockpile, millions new jobs could potentioally be created.
The study, written and conducted by Associate Director and Associate Research Professor James Heintz, Assistant Research Professor Heidi Garrett-Peltier, Assistant Research Professor Jeannette Wicks-Lim and Co-Director and Professor of Economics Robert Pollin, states the near-zero federal funds rate has enabled banks to accumulate $1.6 trillion in cash reserves.
“The reasons corporations are holding on to so much cash is because they are afraid nobody is buying what they’re selling,” said University of Massachusetts Professor and MassBenchmarks Executive Editor Robert Nakosteen. “They’re waiting to be sure we have an economic expansion. As soon as the recovery of the economy takes hold and becomes strong, you’re going to see a sharp increase in hiring, spending and investing in inventory.”
Established in 1998, PERI is an independent unit of the UMass with close ties to the Department of Economics, and their staff frequenly works with economists from around the world as well as UMass faculty and graduate students, according to their website.
As of Jan. 19, the Massachusetts unemployment rate was 6.8 percent. The national unemployment rate was 8.5 percent, and the unemployment rate for employees with bachelor’s degrees was 4.1 percent.
The PERI report recommends a targeted $720 billion package divided between building retrofits designed to reduce energy consumption, infrastructure, community health clinics and small business, because these sectors are primed for investment expansion, foster job growth in labor intensive industries and provide social benefits such as “improved access to healthcare for lower-income neighborhoods via community health clinics.” Additionally, $180 billion would be allocated for infrastructure spending to create jobs, increase productivity and provide needed upgrades, according to the report.
And the report also recommends that banks should write off the debt for the 22.5 percent of residential mortgages – that account for 10. 9 million homes – that are underwater.
The PERI report also states that credit access to small businesses has became constricted, and also recommends that the government should increase loan gurantees. Currently, $340 billion is spent on the Small Business Administration, export-import bank and student loans.
Also to reduce the level of resk between lenders and borrowers, according to the report, $300 billion in loan gurantees should be allocated to small business. In addition, the report also recommends an annual $400 billion stimulus package to generate demand in the economy.
“I believe as long as the private sector is not going to create demand, we should stimulate the economy for the next two years by government spending to soak up demand when households and businesses aren’t doing it,” said UMass professor Nakosteen.
Mason Woolley can be reached at [email protected].
