Awww, did I do that???
PING!
Posted on 08/15/2011 8:58:36 PM PDT by Tolerance Sucks Rocks
Rising prices are no surprise to anyone who has been following the actions of Ben Bernanke’s Fed. Two rounds of “quantitative easing” injected more than $2.3 trillion into bank reserves, and thus to some extent into the economy. The more money chasing products and services, the more those products and services cost.
Bernanke’s thinking was that by pumping trillions into the financial system, he could spur lending, investing, and spending via lower interest rates, and thus goose the economy. But the strategy not only hasn’t improved the economy, it has also had two major bad side-effects. Increased inflation is one side-effect, discussed below. But first, let’s cover a truly nasty side-effect which is being under-reported.
The Fed’s foolishness has weakened job markets. A former president of the Atlanta Federal Reserve Bank, William Ford, and an American Institute for Economic Research fellow, Polina Vlasenko, point out that Bernanke’s tactics have depressed the interest income of people who rely on savings accounts, CDs, money market funds, Treasury and municipal bonds, and variable annuities. As a result, individuals’ income losses are huge. Ford and Vlasenko calculate that quantitative easing most likely caused a $371 billion reduction in personal annual spending, a 2.53 percent reduction in total economic output (gross domestic product, or “GDP”), and a loss of 3.5 million jobs.
With the jobs that would have been created had the Fed not used quantitative easing–positions that would had to have been staffed for companies to meet increased demand driven by increased spending–unemployment might have fallen to around 6.8 percent instead of staying above 9 percent. Ford and Vlasenko estimate that GDP would have increased more than two times faster than the rate that we’ve seen and “the economy would be well on its way to a vigorous recovery, rather than struggling as it is.”
But struggling, and getting worse, the economy definitely is.
Which brings us to the second bad side-effect of Bernanke’s quantitative easing. America’s GDP now lags below the historical trend. We should be experiencing a deflationary economy. Yet, as Calafia Beach Pundit economist Scott Grannis reports, for the first half of 2011, America experienced inflation at a 3.8 percent rate and accelerating. The Fed Chief’s strategy was supposed to stimulate economic activity and stave off deflation. But now the Fed had better be wary of inflation. Grannis analyzes:
Once again these developments underscore supply-siders’ belief that growth can only come from hard work and risk-taking. Monetary policy can’t create growth out of thin air, and neither can fiscal “stimulus” spending. The swimming pool analogy is very apt: fiscal spending “stimulus” is akin to taking water out of the deep end of a pool and pouring it into the shallow end–it achieves nothing and is simply a waste of effort. Real growth only occurs when people work more and/or someone figures out how to make the same amount of work produce more output.
Grannis’s reasoning provides an easy-to-understand explanation of the wrong-headedness of stimulus economics. Federal spending and interest rate manipulation only weaken the economy by moving money from productive sectors to dead ends. Grannis observes:
Too much debt-financed spending only wastes the economy’s scarce resources, while simultaneously boosting expected tax burdens. This in turn reduces the after-tax rewards to hard work and risk-taking, which explains why corporations have been so slow to invest their growing stockpiles of cash. Too much easy money only boosts speculative activity (which shows up as higher commodity and gold prices) while undermining the dollar and reducing investment.
Yet no one who has been paying attention believes that the discrediting of government “stimulus” by real events would stop reality-blind Keynesian ideologues from calling for more spending. Were it not for the mega-mega-debt battle–and now the downgrading of U.S. Treasury debt as well as Fannie Mae and Freddie Mac–President Hopey-Changey would now be in full-on preaching mode, demanding additional borrowing to fund additional hundreds of billions in “stimulus” for a cruddy, and getting cruddier, economy that the once-magic man owns lock, stock, and barrel.
A writer, physicist, former high tech executive, Cajun, and self-rehabilitated former liberal, right-of-center libertarian Chuck Rogér has been published in print and across the web. On his blog, Chuck concentrates on culture, politics, education, science, and economics.
Awww, did I do that???
PING!
Maybe we should audit the fed...uh no....Ah, never mind.
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While it might not be the most presidential-sounding statement, it will do more to get the attention of ordinary citizens focused on the Federal Reserve than some scholarly statement from Gingrich, or one of Ron Paul's many observations on the Fed.
Printing paper money always has been a problem for leaders who prized individual liberty and opportunity for citizens.
The following a just a few statements on the subject which indicate that Perry has history and facts on his side, if the public wishes to study the "paper money" subject. These quotes are a few on the subject from "Our Ageless Constitution". Dr. Edwin Vieira has written extensively on the Founders' protections for liberty through their provisions for a sound money system. A search of his writings might enlighten those who do not understand the following statements.
Thomas Jefferson: "Paper is liable to be abused, has been, is, and forever will be abused, in every country in which it is permitted."
". . . although the other nations of Europe have tried and trodden every path of force or folly in fruitless quest of the same object, yet we still expect to find in juggling tricks and banking dreams, that money can be made out of nothing. . . The misfortune is. . . we shall plunge ourselves in unextinguishable debt, and entail on our posterity an inheritance of external taxes, which will bring our government and people into the condition of those of England, an nation of pikes and gudgeons, the latter bred merely as food for the former."
"Stock dealers and banking companies, by the aid of a paper system [paper money] are enriching themselves to the ruin of our country, and swaying the government by their possession of the printing presses, which their wealth commands, and by other means, not always honorable to the character of our countrymen."
Then there is John Maynard Keynes observation in "The Economic Consequences of the Peace - 1920":
"Lenin is said to have declared that the best way to destroy the Capitalist System was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method, they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. . . . Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. . . . (It) does it in a manner which not one man in a million is able to diagnose. . . ."
Those quotes are dead right.
And yet we did it anyway...
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