(In which our daring Federal Reserve Chairman has committed to printing six hundred billion dollars to buy up the debt which is funding the Federal Government's deficit spending for the next eight months).
Quoted (with some condescension - she's Sarah Palin, they can't help themselves) in the Financial Times blog.
I don't want to excerpt too much - that post, and this one on dissenters within the Fed itself, need to be read in their entirety (please). (The posts are short, important and free.)
But Palin here demonstrates the honesty that I think is necessary (emphasis is mine):
We don’t want temporary, artificial economic growth bought at the expense of permanently higher inflation which will erode the value of our incomes and our savings. We want a stable dollar combined with real economic reform. It’s the only way we can get our economy back on the right track.
Well alright then. Careful what you wish for...
See, the thing is, a stable dollar combined with real economic reform, without temporary, artificial economic growth, is very likely going to cause some substantial short term pain.
The sad thing is, Obama is reduced to claiming that without all the money printing and "stimulus", the unemployment rate would be even higher.
The sadder thing is, is that he has a point.
A strong dollar and a reduction in government spending - heck, even a reduction in the rate of growth of government spending - is likely to cause the financial markets and the real economy some pain.
Remember when Volker raised rates thirty years ago to kill rampant inflation and save the dollar? Very necessary - but he wasn't exactly a popular guy, and Reagan paid for the recession that ensued in the 1982 mid terms.
Does the Tea Party have the stomach for the medicine? Will Sarah Palin's tune change when she reads the label and reviews the side effects with her constituents? Will the swing voters who got fed up with Obama get fed up in turn with a Republican party which promises pain and austerity?
2012 is right around the corner in economic cycle time...
Wall St Journal:
ReplyDeleteIt would be hard to find two more unlikely intellectual comrades than Robert Zoellick, the World Bank technocrat, and Sarah Palin, the populist conservative politician. But in separate interventions yesterday, the pair roiled the global monetary debate in complementary and timely fashion...
Meanwhile gold climbs to around $1420...
Meanwhile gold climbs to around $1420...
ReplyDeleteAnd food staples are flying off store shelves as prudent citizens brace for the inflationary effects of QE2.
Buckle up. It's gonna be a wild ride.
Lewy, from your second link; Kevin Warsh hit the nail on the head:
ReplyDeleteThe Federal Reserve is not a repair shop for broken fiscal, trade, or regulatory policies.
No kidding.
lady red, are people really buying up tons of food around your parts?
ReplyDeleteI remember in 2008 when there was a big inflation spike and food shortage scares, people here were visibly stocking up in places. It's not a good impulse, actually; panic is contagious. But people aren't wrong to look out for themselves.
Do you think the Camellia insurgents around you have the stomach for more unemployment?
UK style cuts would cut _millions_ from the Federal government payroll, and the ripple effects would be felt by the whole economy.
Higher interest rates would hurt housing (excuse me - it would allow housing to find it's proper price level quicker) and the banks - which may go into receivership / resolution after all, in that case - and which certainly won't be friendly for small business lending.
A stronger dollar _would_ curb inflation; of course outright deflation - including actual wage cuts - wouldn't make anyone richer, and might tip the housing market into actual collapse (as the cash flows backing the fixed real estate debt dry up, and interest rates back up - which eliminates refi).
I'm not saying we shouldn't take the medicine - I think QE2 should not have been committed and that a strong (or at least non-collapsing) dollar policy re-instituted...
...but it's easy to write prescriptions... do you think people will take the medicine?
Or will they turn around in two years and listen to Obama excoriate the Republicans for not allowing him to create jobs, and fall for promises of government led prosperity?
Well this is interesting.
ReplyDeleteOf course, PJM is essentially a media company, a business, and they are trying to sell you stuff... but that said, I think this is a good initiative.
Lewy, I wouldn't say they're buying TONS of food, but it's obvious that folks are stocking up. Noah and I both noticed it this past weekend when we were doing our grocery shopping. I haven't seen any fear or panic; I think it's just good old-fashioned practicality.
ReplyDeleteI honestly don't know how much more skin people are willing to put in the game. You can't ask a family making fifty or sixty thou a year to give more than they already have, especially when their neighbors are living off of entitlements.
I don't know the answer. I do think that the gov't will have hell to pay if they cut social security without cutting all the myriad welfare programs, foreign aid, business subsidies, etc.
We've gotten ourselves in a helluva fix.
I agree that the cuts will have to be perceived as fair. But they have to happen.
ReplyDeleteSee, I'm of the view that the middle class is basically screwed in any scenario. The family making fifty/sixty thousand a year is going to have the skin extracted one way or another.
One general path leaves us with lower living standards and a massive increase in government power.
The other general path leaves us with lower living standards and a restoration of government to its proper size and role.
The problem is that the government power types are going to sing a siren song of "saving the middle class".
The only way to fight this - to win an election by promising short term pain - is to prove you opponents are liars, and that there is no easy way out.
I'm going to be looking at our newly elected freshman class through this lens.
Listening to 'Marketplace' on the way home and it already seems that the markets are responding to the infusion of fiat money.
ReplyDeleteNot only gold & silver are up, but so are a growing list of commodities, including sugar, gasoline (10%) and coffee (12%).
As per usual, with ANY government action, no thought is wasted on those on the lower end of the economic scale, who will have to struggle even more to make a life with less and less buying power in their few dollars.
Oh, and I really expect Barry0 to get an earful at the G20 meeting in Seoul.
ReplyDelete"The only way to fight this - to win an election by promising short term pain - is to prove you opponents are liars, and that there is no easy way out."
ReplyDeleteEven without a direct threat, the Brits saw that NuLabour was basically unsustainable and threw the bastards out...not before time
Well, the "short term pain" is going to be anything but short and the pain will be severe but everyone I spoke to when I was there welcomed the draconian measures, stated that they should have happened sooner, were prepared for the austerity, and cheered Cameron on to do MORE!
Fay, I wonder if that attitude has anything to do with the fabled British "stiff upper lip". On this side of the pond, I think there's a chance for that kind of change (and discomfort) if we still have enough voting public who have not sold their souls to entitlements. What's the old observation about end of civilization being the people finding out that they can vote themselves more money? Perhaps there are still enough around who think that is a bad idea...
ReplyDeleteLyana, I always considered the British "stiff upper lip" to be nothing but good, old fashioned, common sense. And that seems to be kicking in right now.
ReplyDeleteI don't believe that Canada has anywhere near the problems that the UK or the US has. If we can hang on to our Conservative government long enough, and get that hippie Trudeau out of the collective consciouness, we'll be okay!
That's a good point, Fay; I've never lived there, but it's always seemed to me that it's more than just common sense - perhaps paired with a tenacity to face what will come without complaint?
ReplyDeleteI fully agree that in Canada (especially in BC), it feels like we're in a protected little bubble. From what I read about GB, from what I hear from friends in the US, the situation is so much more dire in both those places. I only hope people will have the fortitude and patience to allow things to be pulled back from the brink.