By Al Lewis
The Federal Reserve's plan to pump tens of billions of dollars
into the banking system each month until the unemployment rate
drops to 6.5% doesn't seem to be working.
Last week, with the release of minutes from the central bank's
January meeting, we learned some Fed officials are worried all this
money they printed may cause excessive risk-taking and
financial-market instability. Yes, they're finally beginning to
wonder if they should suddenly dump their goal of restoring jobs
and stop the presses before there's another financial calamity or a
rash of inflation.
The Fed has been holding interest rates near zero and injecting
trillions into the economy since the 2008 financial crisis.
Despite this unprecedented action, the unemployment rate -- now
at 7.9% -- has remained depressingly high. Instead of spurring job
creation, the Fed's money has rebuilt banks that should have
failed, reinflated the stock market to postcrash highs and helped
companies and investment groups hoard cash.
Companies don't know what to do with this loot, the rising value
of their stock or the funds they can borrow from banks for next to
nothing -- all thanks to the Fed. They can't find customers so they
can't create jobs. They also can't keep their cash hoards in
low-interest-bearing accounts forever. Their next best idea:
mergers and acquisitions.
This year we're off to the quickest start for M&A activity
since 2000 and the heady days of the Internet bubble, according to
data from Dealogic.
There's plenty of news you may not have read about, such as the
$2.5 billion deal Linn Energy struck to buy Berry Petroleum last
week. Then there's an array of supersize deals you probably have
read about: American Airlines merging with US Airways in an $11
billion deal; Warren Buffett and a Brazilian buyout firm purchasing
H.J. Heinz for $28 billion; and Michael Dell hoping to take his
namesake computer company private in a $24 billion deal.
Deals are great for the stock market. They are good for bankers,
lawyers, accountants and analysts. They may even help some
struggling companies survive by strapping themselves together like
damaged ships in a storm. But they won't create the millions of
jobs America needs to get out of its malaise. In fact, sometimes
deals destroy jobs.
Office Depot and OfficeMax announced last week that they would
merge in a stock swap worth about $1.2 billion. One of the
highlights is a promised $400 million to $600 million in annual
"synergies." That's a polite way of saying they will close stores,
hack jobs and cut their way to prosperity.
The private-equity firm that is buying Heinz with Mr. Buffett,
3G Capital, cut hundreds of jobs at Burger King after paying $3.3
billion for the fast-food chain in 2010. The move resulted in
higher profits, even as sales fell, in a fine example of addition
by subtraction.
The same strategy may not be required at Heinz, but the ketchup
deal is already freaking folks out. People across the packaged-food
industry say they now anticipate a wave of consolidation.
Denise Morrison, chief executive of Campbell Soup, recently put
it this way: "It's a heightened signal that I've got to be even
more aggressive about costs . . . . This is a good call to
action."
So the Fed prints money to create jobs and, ironically enough,
some of it only encourages people to destroy jobs. Chalk it up to
the law of unintended consequences, but the Fed probably isn't
changing course anytime soon.
Watch out for hatchets at a company near you.
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Al Lewis is a columnist for Dow Jones Newswires in Denver. He
blogs at tellittoal.com; his email address is
al.lewis@dowjones.com