Sarah Palin is looking askance at the latest scheme by the Federal Reserve to try to jump start the economy by buying between $600 billion to $1 trillion worth of bonds in order to pump money into the banking system.
For someone who is supposed to be a rube from the backwoods of Alaska, former Governor Palin’s critique of the scheme is very eloquent and sophisticated. In remarks to the trade association summit in Phoenix, Palin attacked the scheme as risky:
“I’m deeply concerned about the Federal Reserve’s plans to buy up anywhere from $600 billion to as much as $1 trillion of government securities. The technical term for it is ‘quantitative easing.’ It means our government is pumping money into the banking system by buying up treasury bonds. And where, you may ask, are we getting the money to pay for all this? We’re printing it out of thin air.
“The Fed hopes doing this may buy us a little temporary economic growth by supplying banks with extra cash which they could then lend out to businesses. But it’s far from certain this will even work. After all, the problem isn’t that banks don’t have enough cash on hand – it’s that they don’t want to lend it out, because they don’t trust the current economic climate.”
The Fed is betting that this pump priming will not result in inflation. Unfortunately, there is the very real danger that quantitative easing, or QE2 as it is called, could spark at the least 1970s-style stagflation which featured all of the bad features of a slow economy and inflation. At worst, we get the Weimar Republic when, at one point, people were carrying wheel barrels of cash to buy meager groceries.
This kind of deliberate inflation also enrages countries like China that hold a lot of our federal debt. Inflation inevitably leads to an erosion of the value of that debt and in turn the possibility of retaliation.
Sarah Palin focuses in on the real reason for the persistence of the economic crisis, something she seems to understand better than Fed Chairman Ben Bernanke and the economic advisers of President Barack Obama. Banks and other businesses are afraid of economic policies coming out of Washington. If they invest money, taxes and regulations would inevitable negate any return that could be had on that investment. That is one reason that the Great Depression lasted so long; FDR’s New Deal terrified private business, leading to a “capital strike” that lasted until World War II.
Palin’s prescription, besides cutting spending and taxes, for the bad economy is simple and common sense. “When Germany, a country that knows a thing or two about the dangers of inflation, warns us to think again, maybe it’s time for Chairman Bernanke to cease and desist. 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.”
The Fed, which is independent from the influence of the government, might indeed want to think again. One gainsays the Mama Grizzly at one’s peril.
Source: Palin to Bernanke: ‘Cease and Desist’, Robert Costa, National Review Online, November 7th, 2010