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JERREY ROBERTS

James Heintz, co-author of a report released this month by the Political Economy Research Institute at the University of Massachusetts, said before the economic crisis, banks had about $20 billion in reserve, and now that figure is $1.6 trillion or “eightyfold” more than usual, something he called “mind-blowing.”

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COURTESY OF UMASS

Robert Pollin

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ROBERT

POLLIN

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James Heintz

AMHERST - While millions of Americans face foreclosure and even homelessness due to the unemployment crisis, U.S. corporations and commercial banks are sitting on piles of cash totaling $3.6 trillion - nearly a quarter of the country's gross domestic product - according to economists at the University of Massachusetts Amherst.

Part of that "unprecedented cash hoard" could be used to create as many as 19 million jobs and bring the unemployment rate - which is in the double digits in some states - down to a nationwide level of 5 percent, according to a report issued this month by the Political Economy Research Institute at UMass.

The official U.S. unemployment rate in November was 8.6 percent, down from a high of 10.1 percent in late 2009. That means at least 13.3 million Americans are unemployed.

Nationally, unemployment is highest in Nevada (13 percent), California (11.3 percent) and the Washington, D.C. (10.6 percent).

Massachusetts' unemployment rate stands at 7 percent. Other New England states are at 10.5 percent (Rhode Island), 8.4 percent (Connecticut), 7 percent (Maine), 5.3 percent (Vermont) and 5.2 percent (New Hampshire).

The UMass report, written by PERI's Robert Pollin, James Heintz, Heidi Garrett-Peltier and Jeannette Wicks-Lim, says banks and corporations could safely spare $1.4 trillion in "liquid assets" that could be used to cut joblessness in half by the end of 2014. A variety of new policy measures could stimulate demand and ease credit constraints, they say.

The report's authors also dispute the official unemployment figure, saying it doesn't count people who are discouraged and no longer looking for work, or those who are working part-time and want full-time work. Factoring that population into the equation would put the real unemployment figure at 15.6 percent, or 24 million people, "a figure roughly equal to the combined populations of New York, Los Angeles, Chicago and the other seven largest cities in the country," the report states.

The PERI report authors "like to use a broader measure" of unemployment figures than those used by the U.S. Bureau of Labor Statistics because they want to more accurately reflect the experiences of the American workforce, said Wicks-Lim, a UMass labor economist.

Pollin said he has closely followed the economic crisis that has becalmed the American economy since 2008. But the amount of cash hoarded by banks "shocked the hell out of me," he said Thursday in a telephone interview from Tel Aviv, Israel, where he is visiting.

Heintz and Pollin both said U.S. banks have never had such mountains of cash held in reserve.

Before the economic crisis, the banks had about $20 billion in reserve, Heintz said, noting that the current $1.6 trillion is "eightyfold" larger, which he called "mind-blowing."

The Federal Reserve "has been bailing them out," Heintz said, "And yet we don't see job creation."

"I'm not blaming the Fed," Heintz added. "The financial sector is not doing its part to help out the U.S. economy."

The Fed policy was designed to pump money into the U.S. economy, he said, adding that bank hoarding was not the expected outcome.

"Job creation is the most important policy in the domestic domain that the government has to focus on," Pollin said.

Using $1 trillion of excess bank holdings "will create a lot of jobs," he said. And the beauty of the plan is "this won't cost taxpayers a penny," he added.

The PERI group recommends changing U.S. policies that have enabled such large cash reserves to be stockpiled, including Fed policy that lets banks borrow funds at near-zero interest rates (and even get paid 0.25 percent for holding the cash on hand), or policies that allow corporations to use their cash for "financial engineering," such as stock buybacks, rather than expanding operations and hiring more workers.

A detailed breakdown

The PERI authors say the 19 million potential new jobs their report identifies would be spread out over three yeas and apportioned in the following areas: 40 percent to workers with high school diplomas, 30 percent to those with some college, and 30 percent to those with college degrees.

They say there are steps that U.S. policymakers can take to stimulate demand, which will encourage business expansion and job creation.

The authors favor creating priorities for businesses which are best suited for job creation, with energy-efficient retrofitting at $60 billion; private and public infrastructure at $180 billion; health care, including community health clinics, at $180 billion; and small businesses at $300 billion.

The rest of the money, $480 billion, could be spread "fairly evenly" throughout the economy, the economists recommend.

The authors say they developed "a very high-end estimate" of how much cash commercial banks need in order to deal with the ongoing home mortgage crisis that has led to millions of defaults, pegging the figure at $300 billion, then doubling it.

As for nonfinancial corporations, the authors note that the ratio of liquid assets held relative to short-term liabilities has risen from about 32 percent in 2001 to nearly 65 percent in 2010. Their estimate of excess cash holdings for the corporations at $400 billion, they say, is "based on highly conservative premises."

But hoarding cash is not the sole cause of economic stagnation and widespread unemployment, the economists say. They say the "toxic combination" of low demand and poorly performing financial markets are a big part of the problem.

In addition, they note that household wealth collapsed by $17.6 trillion from 2006 to 2008, nearly 25 percent in just two years, leading to a reduction in household spending.

To combat the low demand, credit deadlock crisis, the authors propose more government stimulus spending, such as President Obama's jobs program, proposed in September and still languishing in Congress; debt forgiveness by the banks, which could reduce the mortgage debts of homeowners, particularly the 22.5 percent who are "underwater" and owe more than their homes are now worth; a tax on excess bank reserves; and guarantees for small business loans.

"Solving the unemployment crisis would accomplish far more than any other measure toward bringing the federal deficit down," the report states. "This is simply because when more people have jobs, they also pay more taxes and rely less on government support, such as unemployment insurance and Medicaid."

Heintz said federal policymakers need to "make changes that make ordinary people feel more secure right now."

That might include mortgage write-downs for homeowners who bought moderately priced homes that have lost a great deal of their value, he said.

"Those people can't sell their homes and they can't refinance their loans," he said. "They can't move from Michigan, say, to a job in Massachusetts. It freezes up the labor market."

Pollin said he will participate in a conference call with Federal Reserve Chairman Ben Bernanke in early January as Bernanke reaches out to economists nationwide for insights and suggestions to address the country's economic woes.

Asked if Bernanke is aware of the information in the PERI job-creation report, Pollin said: "He knows it. It won't be news to him."