Archive for August, 2011

Would Creating Hyperinflation be Treasonous ?

Sunday, August 21st, 2011

Last week Rick Perry made a comment that got wide attention in mainstream media.

Mr. Perry brought the Fed directly into the campaign debate Monday night by saying it would be “almost … treasonous” for the central bank to play politics by expanding the money supply.

“If this guy prints more money between now and the election,” Mr. Perry said in Cedar Rapids Monday night, without naming Mr. Bernanke, “I don’t know what y’all would do to him in Iowa, but we—we would treat him pretty ugly down in Texas.”

Today, on Meet the Press, Peggy Noonan showed that she is completely clueless on this subject by going off on a riff about how a president has to appear “nice.” She never did address the subject.

Others, who appear to know more about monetary policy had a different take.

Thomas Gallagher, a principal and economic policy analyst at the Scowcroft Group in Washington who advises Wall Street firms, said Mr. Perry’s comments will be the first thing many investors learn about his candidacy. And the comments are “drawing a fair bit of attention.”

“Voters may not care as much, but investors, like the chattering class, expect a candidate to know what he’s talking about when he talks about the Fed,” he said. “It’s one thing to oppose what the Fed is doing, but it’s another to call it almost treasonous.”

I don’t know that treason was the right word to use but the point is that the Fed is feeding inflation which is far more apparent to those of us who buy our own groceries than most politicians. Ron Paul has been railing at the Fed for years and he is gaining allies.

Libertarian Rep. Ron Paul, who fell 152 votes short of winning the Iowa GOP’s straw poll on Saturday, has been railing against the Fed for years, and former House Speaker Newt Gingrich has joined in with an “Audit the Fed” petition. Other conservatives complain that the Fed’s policy of using monetary policy to stimulate the economy, which it indicated last week it might renew, could be sowing the seeds of inflation.

I would say we are past the “seeds” stage.

The US Treasury has been the largest buyer of new Treasury bonds. How can this be ? The Federal Reserve is printing more money that is then used to buy the debt. Is this an example of the elusive perpetual motion machine ?

• Turning government bonds into circulating money is called monetizing the national debt.

• Quantitative easing is a euphemism for creating money out of thin air. In the vernacular, we call it “printing money,” even though it really has nothing to do with the U.S. Bureau of Engraving and Printing.

• The way it’s supposed to work is that the Fed buys securities in the open market, paying with a government “check.” (That’s how the money is created.) The sellers deposit those checks into their banks. The banks redeploy those deposits as loans to consumers and business. The money supply expands and, in turn, so does the economy.

What effect will this have on the dollar ? The economy hasn’t exactly expanded while this has been going on.

One factor may be saving us the worst of the effects of this reckless policy. Troubles in Europe and elsewhere in the middle east have caused many investors to engage in a “flight to quality,” although I wouldn’t call the dollar “quality” right now. The Euro, however, seems to be in even worse trouble.

Cokie Roberts blurts out the truth

Sunday, August 7th, 2011

I watch the Sunday talk shows, usually flipping back and forth between them. I was struck today by a comment made by Cokie Roberts on ABC’s This Week. In the discussion of the S&P downgrade of US Treasury bonds, she was arguing with a tea party affiliated Congressman from Utah named Chaffetz and she made the following statement: (The comment begins at 8:55)

The reason why they (S&P) like France and England is because they have parliamentary government, because the majority gets what it wants. There is no divided government where both parties have to agree.

I thought that an astonishing but revealing statement. First, Britain and France have not been exemplars of fiscal probity the past 50 years, with the exception of Margaret Thatcher’s era. She even mentioned that England now has an austerity program. Also, she didn’t mention that Obama had undivided government for two years and spending increased 24%. In fact, there has been no national budget for two years, probably because the Democrats did not want to expose their plans prior to the 2010 election.

Her second comment was also revealing:

The problem is with the US Constitution.

There, in a nutshell, is the Democrats’ complaint. The Constitution restricts the ability of one political party to spend at will without regard of the consequences. God knows we have had excessive spending since 1965 in this country with the Constitution intact. But, for Democrats, that has not been enough. I don’t think I have seen a more revealing comment.

How the Left Lies to Itself

Saturday, August 6th, 2011

Here is the latest post on Political Animal, a leftist blog sponsored by Washington Monthly, a leftist magazine.

Political Animal

August 06, 2011 11:05 AM
A timeline of events
By Steve Benen

Let’s take a stroll down memory lane, shall we?

1980: Ronald Reagan runs for president, promising a balanced budget

1981 – 1989: With support from congressional Republicans, Reagan runs enormous deficits, adds $2 trillion to the debt.

Reagan did not have a Republican Congress during his two terms. He did have a Republican Senate for his first six years. Bob Dole was Majority Leader, which was no help in cutting spending.

Lie #1

1993: Bill Clinton passes economic plan that lowers deficit, gets zero votes from congressional Republicans.

Bill Clinton passed a tax increase which Republican predicted would slow economic growth. Bush had also raised taxes at the insistence of Democrats and a recession cost him re-election.

1998: U.S. deficit disappears for the first time in three decades. Debt clock is unplugged.

The fact is that Republicans took over both houses of Congress in 1995, the House for the first time since the post-war era. The stock market took off and revenues poured in from a good economy and the internet bubble which burst in 2000.

2000: George W. Bush runs for president, promising to maintain a balanced budget.

2001: CBO shows the United States is on track to pay off the entirety of its national debt within a decade.

In fact, the national debt kept climbing and the “surplus” was on paper only. Bush inherited the recession that followed the bursting of the internet bubble in 2000.

2001 – 2009: With support from congressional Republicans, Bush runs enormous deficits, adds nearly $5 trillion to the debt.

The Bush deficits were declining the last two years of his term and the Democrats took over Congress in 2007. The Bush deficit in his last year was 10% of the present deficit. Notice Steve Benin doesn’t provide numbers.

That shows the deficits Obama inherited. Notice the increase after the Democrats took Congress in 2007.

2002: Dick Cheney declares, “Deficits don’t matter.” Congressional Republicans agree, approving tax cuts, two wars, and Medicare expansion without even trying to pay for them.

This is a matter of policy choices. I am no fan of Bush in the spending department. He should have vetoed some spending bills that Hastert told him to sign. It was no fluke that Hastert’s district, after he retired from Congress, was won by a DEmocrat.

2009: Barack Obama inherits $1.3 trillion deficit from Bush; Republicans immediately condemn Obama’s fiscal irresponsibility.

The condemnation was of his plans to spend wildly.

2009: Congressional Democrats unveil several domestic policy initiatives — including health care reform, cap and trade, DREAM Act — which would lower the deficit. GOP opposes all of them, while continuing to push for deficit reduction.

No one with any economic knowledge would believe that Obamacare and Cap and Trade would lower the deficit. The most serious effect Obama has had thus far is the avalanche of regulation that has descended on business making anyone with money unwilling to invest. That is where jobs come from and the economy is stalled.

September 2010: In Obama’s first fiscal year, the deficit shrinks by $122 billion. Republicans again condemn Obama’s fiscal irresponsibility.

The economy may have begun to recover on its own, which is what usually happens in the absence of an activist government. Then came the impact of Obama’s and Pelosi’s spending.

October 2010: S&P endorses the nation’s AAA rating with a stable outlook, saying the United States looks to be in solid fiscal shape for the foreseeable future.

An exaggeration.

November 2010: Republicans win a U.S. House majority, citing the need for fiscal responsibility.

December 2010: Congressional Republicans demand extension of Bush tax cuts, relying entirely on deficit financing. GOP continues to accuse Obama of fiscal irresponsibility.

The left does not understand that government does not create wealth. Raising taxes in a recession is what Hoover did. I wouldn’t think they would want to copy him but they learn nothing.

March 2011: Congressional Republicans declare intention to hold full faith and credit of the United States hostage — a move without precedent in American history — until massive debt-reduction plan is approved.

July 2011: Obama offers Republicans a $4 trillion debt-reduction deal. GOP refuses, pushes debt-ceiling standoff until the last possible day, rattling international markets.

This is another lie. Obama and Boehner were close to an agreement and then Obama insisted on tax increases after agreeing not to do so. He responded to complaints from the left which is fixated on tax increases.

August 2011: S&P downgrades U.S. debt, citing GOP refusal to consider new revenues. Republicans rejoice and blame Obama for fiscal irresponsibility.

Another lie. The S&P report said the debt levels are too high and the agreement did not do enough to cut spending.

The outlook on the long-term rating is negative. We could lower the long-term rating to ‘AA’ within the next two years if we see that less reduction in spending than agreed to, higher interest rates, or new fiscal pressures during the period result in a higher general government debt trajectory than we currently assume in our base case.

There have been several instances since the mid 1990s in which I genuinely believed Republican politics couldn’t possibly get more blisteringly ridiculous. I was wrong; they just keep getting worse.

Steve Benen is a contributing writer to the Washington Monthly, joining the publication in August, 2008 as chief blogger for the Washington Monthly blog, Political Animal.

There was a time when Democrats understood economics. Those days are over. They have convinced themselves that money grows on trees. They are destroying this nation’s finances, with help from many Republican professional politicians. The only hope is the tea party and turning Obama out in 2013.

The following essay expresses my feelings better than I can.