Posted on 04/25/2011 7:39:55 AM PDT by SeekAndFind
Over the weekend, the New York Sun took a shot at Ben Bernanke and a whole host of economists that ridiculed Sarah Palin for her immediate criticism of the Fed’s second round of quantitative easing as inflationary and damaging to the US dollar. At the time, even the Wall Street Journal’s pages could barely contain their derision for Palin’s warning of inflation impacting food prices and eroding consumer buying power just when they were most needed for economic recovery. With the dollar tumbling and gas and food prices soaring, the Sun wonders whether we could do worse than to put Palin in Bernanke’s place:
The big question as Chairman Bernanke gets set for his first quarterly press conference is how Sarah Palin was able to figure out sooner than everyone else that the Federal Reserve’s campaign of quantitative easing wouldn’t work. Disappointment in the Fed’s policies is being reported this morning at the top of page one of the New York Times. It reports that “most Americans are not feeling the difference” from the Fed’s “experimental effort to spur a recovery by purchasing vast quantities of federal debt.” It reports that “a broad range of economists say that the disappointing results show the limits of the central bank’s ability to lift the nation from its economic malaise.”
It’s a terrific story, and well-timed, given that on Wednesday Mr. Bernanke will break tradition and meet with the press. It is part of the Fed’s effort to get ahead of what is emerging as a public relations catastrophe, as gasoline is nearing six dollars a gallon at some pumps, the cost of groceries is skyrocketing, and the value of the dollars that Mr. Bernanke’s institution issues as Federal Reserve notes has collapsed to less than a 1,500th of an ounce of gold. Unemployment is still high. Shakespeare couldn’t come up with a better plot. But how in the world did Mrs. Palin, who is supposed to be so thick, manage to figure all this out so far ahead of the New York Times and all the economists it talked to?
The New York Times tried putting a good spin on the Fed’s efforts, but as the Sun notes, it’s a doomed effort. And even Fed members have begun publicly pushing back against QE2:
“I wasn’t a big fan of it in the first place,” said Charles I. Plosser, president of the Federal Reserve Bank of Philadelphia and one of the 10 members of the Fed’s policy-making board. “I didn’t think it was going to have much of an impact, and it complicated the exit strategy. And what we’ve seen has not changed my mind.”
One big problem with QE2 is that it attacked the symptoms rather than the problems:
As the economy sputtered last summer, Mr. Bernanke indicated in an August speech that the Fed would start a second round of quantitative easing, soon nicknamed QE 2. The initial response was the same: Asset prices rose, interest rates fell, and the dollar declined in value.
But in addition to being smaller, and solely focused on Treasuries, there also was a problem of diminishing returns. The first round of purchases reduced the cost of borrowing by persuading skittish investors to accept lower risk premiums. With markets closer to normalcy, Mr. Bernanke warned in his August speech that it was not clear that the Fed would have comparable success in persuading investors to accept even lower rates of return. …
Another indication of its limited success: Borrowing has not grown significantly, suggesting that corporations — which are sitting on record piles of cash — are not yet seeing opportunities for new investments. Until they do, some economists argue that the Fed is pushing on a string.
The actual problem in the economy is that government policies and high deficits portend massive tax increases in the near future, and regulatory adventurism promises higher operational costs. With the current administration sending those signals loudly and clearly, capital investors have no good reason to get off the sidelines and put their capital to work. The Fed has no control over that; they can only adjust monetary policy for a problem that monetary policy doesn’t impact significantly. Bernanke and the Fed attacked the one problem they could address — the risk of deflation — and kicked off inflation instead.
Many of us predicted exactly this outcome last fall when the Fed launched QE2, including Sarah Palin. We need to worry less about who’s running the Fed and more about who’s running the federal government. That’s where the problems can actually get solved.
I feel the need to compile several talking points lists for the coming presidential campaign. One is the "If-Sarah-Palin-is-an-idiot-then-how-come-X?" list.
NO, when sarah is president, she needs to kill the fed...and get the UN the hell out of here as well...
Maybe because Palin speaks for working stiffs and not the Wall Street/DC elites? Any number of FReepers predicted this fiasco. But, then again, we work for a living.
********Palin Ping********
DO it! And if you can state the date of her speech or essay and quote her, demonstrating predictions made on bad policy that has proven her correct that would be great. Take no prisoners!
It would help her cause if she actually referenced this in an interview. She can’t count on anyone else outside of a paper like the sun or a few blogs doing it for her.
Of course, it also would help her cause if she turned the whole “idiot” meme on its head. Embrace it. Say “well, thank goodness the geniuses are in charge, because, if an idiot like me were in there, gas might be $4.00 per gallon”. Do it for food prices, Obama’s handling of Libya, everything. That’s how you take the whole dummy thing and stuff it down their collective throats.
No, how about sending the Fed to Palin, that is liquidating it and returning the country to a 100% reserve banking standard based on real money?
But since the Federal Reserve Corporation is wholly owned by the “member financial institutions” in proportion to their capital, how does one assign a fair market value to the shares in the Corporation that enjoys a government monopoly on the power to create US Dollars ex nihilo (”out of nothing”)?
In theory at least the value in USD of a single share of the Federal Reserve Corporation should be infinite. If so, should anyone seriously propose to abolish that Corporation, and this destroy the value of the shares, would the Federal government face “takings” litigation on the part of the shareholders?
It would be fascinating to see what would come out of the woodwork in terms of which parties in our political dynamic would take what positions on this question.
But the facts are clear: in 1913 the US government granted a monopoly to a corporation that it had zero ownership issue in but that was entirely owned by the banks. The banks continue to operate that Corporation in their interest. Money is created, interest rates are set and all manner of credit and currency swaps and loans are made with who knows whom in the interest of the banks.
If someone were to propose that government should assume this function, they would be proposing to run the Central Bank just as competently as they now run Amtrack, Medicare and Social Security, which is to say with zero competence.
The only answer is to return money to the only party who has the unalienable right to be secure in their personal property: the people. That means to abolish the national currency as a unique unit and allow people to choose whatever means of value exchange they please. The only role of government would be to protect against fraud and theft. History shows that people would return to using weights of gold and silver. There are existing forms of electronic precious metals, such as GoldMoney, where gold and silver is accounted for in milligrams. Electronic money would still be possible, but only as warehouse receipts.
One other benefit to this would be to eliminate or at least greatly reduce the boom-bust cycles that destroy wealth and throw so much chaos in our lives.
The Austrian economist Huerta de Soto wrote a book, Money, Bank Credit and Economic Cycles. He fully explained the fraud of fractional reserve banking and the damage it does. This is his conclusion:
In conclusion, if we wish to build a truly stable financial
and monetary system for the twenty-first century, a system
which will protect our economies as far as humanly possible
from crises and recessions, we will have to: (1) ensure complete
freedom of choice in currency, based on a metallic standard
(gold) which would replace all fiduciary media issued in
the past; (2) establish a free-banking system; and, most importantly,
(3) insist that all agents involved in the free-banking
system be subject to and comply with traditional legal rules
and principles, especially the principle that no one, not even a
banker, can enjoy the privilege of loaning something entrusted
to him on demand deposit (i.e., a free-banking system with a
100-percent reserve requirement).
Until specialists and society in general fully grasp the
essential theoretical and legal principles associated with
money, bank credit, and economic cycles, we may realistically
expect further suffering in the world due to damaging economic
recessions which will inevitably and perpetually reappear
until central banks lose their power to issue paper money
with legal tender and bankers lose their government-granted
privilege of operating with a fractional reserve. We now wrap
up the book as we began it, with this opinion: Now that we
have seen the historic fall of socialism, both in theory and in
practice, the main challenge to face both professional economists
and lovers of freedom in this new century will be to use
all of their intellectual might to oppose the institution of the
central bank and the privilege private bankers now enjoy.
Link to free PDF of book: http://mises.org/books/desoto.pdf
BTW, a great book and a pretty easy read.
Sarah once again demonstrates that she is well ahead of the curve when it comes to events and politics. Her plain speaking style communicates the simple truths that escape the establishment liberal machine. And thank goodness, people are listening!
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