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Fed Just Creating Asset Bubbles, Not Stimulus: Ross

CNBC.com
Friday, 3 Dec 2010 | 2:40 PM ET

Federal Reserve policies are creating an asset bubble that isn't helping create jobs or acting as a real stimulus to the economy, investor Wilbur Ross told CNBC.

Lucien Capehart | Getty Images

With the US corporate balance sheet around $2 trillion but unemployment mired at 9.8 percent, the Fed's latest move to buy $600 billion in Treasurys is a topic of hot debate.

Ross, president of vulture investment firm W.L. Ross, said that even though some parts of the economy are looking better, critical areas such as bank lending continue to languish, despite all the Fed-injected liquidity.

"The banks have trillions of dollars of reserves that they're not lending out," he said. "Adding another $600 billion to it I don't think is going to modify their behavior at all. This is an asset bubble, certainly not a real stimulus to the economy."

The government reported Friday that just 39,000 jobs were created in November, much less than economists had expected. Ross said the slow employment growth is reflective of how companies have managed to do more with less and are unlikely to start hiring until fundamental conditions change.

"I don't see that very many industries have been having very dramatic top-line growth, and that's what you need if you're going to pull through, get unemployment down and really get into a significant economic upturn," he said. "I think corporate America is going to do better than Mr. and Mrs. America."

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Investors weigh in on how they can make money in both good times and bad, with Wilbur Ross, WL Ross & Co.; Mark Bronzo, Security Global Investors and CNBC's Ron Insana.

As the European debt crisis and slow housing recovery act as overhangs for the market, Ross nevertheless said he is investing in banks.

His company has large stakes in banks in Oregon, Idaho and Michigan and even has branched out into Ireland, despite its problems with sovereign debt that triggered an International Monetary Fund bailout.

US policy makers should take their cues from what is happening in Europe, said Ross, who added that the Fed is simply monetizing the US debt by printing money.

"I feel that's a psychological deterrent to the government doing what it should do, which is get its fiscal house into order," he said.

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