21 Dec 2008

Fed Busily Printing Money

, , , ,

James Grant, in the Wall Street Journal, points out that the Bernanke Federal Reserve policies of inflating our way out of recession are practically certain to produce worse than a recession.

It was on Oct. 6, 1979, that then-Fed Chairman Paul A. Volcker vowed to print less money to bring down inflation. So doing, he closed one monetary era and opened another. With Tuesday’s promise to print much more money, the Federal Reserve of Ben S. Bernanke has opened its own new era. Whether Mr. Bernanke’s policy of debasement will lead to as happy an outcome as that which crowned the Volcker anti-inflation initiative is, however, doubtful. Whatever the road to riches might be paved with, it isn’t little green pieces of paper stamped “legal tender. …

The seasons of finance are unpredictable. Prescience is rare enough in the private sector. It is almost unheard of in Washington. The credit troubles took the Fed unawares. So, likely, will the outbreak of the next inflation. Already the stars are aligned for a doozy. Not only the Fed, but also the other leading central banks are frantically ramping up money production. Simultaneously, miners and oil producers are ramping down commodity production — as is, for instance, is Rio Tinto, the heavily encumbered mining giant, which the other day disclosed 14,000 layoffs and a $5 billion cutback in capital expenditure. Come the economic recovery, resource producers will certainly increase output. But it is far less certain that, once the cycle turns, the central banks will punctually tighten.

The public has been slow to anger in this costliest and scariest of post World War II financial crises. Wall Street and the debt ratings agencies have come in for well-deserved castigation. But pointing fingers rarely find the Federal Reserve, whose low, low interest rates helped to set house prices levitating in the first place.

After Mr. Bernanke gets a good night’s sleep, he should be called to account for once again cutting interest rates at the expense of the long-suffering (and possibly hungry) savers. He should be asked to explain how the central-banking methods of the paper-dollar era represent any improvement, either in practice or theory, over the rigor, elegance, simplicity and predictability of the gold standard. He should be directed to read aloud the text of critique by Elihu Root and explain where, if at all, the old gentleman went wrong. Finally, he should be directed to put himself into the shoes of a foreign holder of U.S. dollars. “Tell us, Mr. Bernanke,” a congressman might consider asking him, “if you had the choice, would you hold dollars? And may I remind you, Mr. Chairman, that you are under oath?”

Thank goodness, we lost the election! If the government is going to screw up the economy royally by pursuing short-sighted liberal economic policies, let’s have democrats doing that.

StumbleUpon.com
One Feedback on "Fed Busily Printing Money"

Scott D

The federal reserve and the Bush administration have adopted the Churchillian attitude that inflating the currency is the worst possible monetary course except for all the others. They may actually be correct in that judgment, but the result will surely be a huge spike in inflation within the next 2-3 years as money velocity accelerates and the financial markets recover. At that point, they will face the sort of situation that the Carter administration did: whether to tank growth and asset inflation to foster stable money or to continue spiking the punchbowl. We know what they opted for.



Comments

Please Leave a Comment!




Please note: Comments may be moderated. It may take a while for them to show on the page.













Feeds
Entries (RSS)
Comments (RSS)
Feed Shark