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THE CONSERVATIVE REVIEW - November 16, 2010
The Fed Trashes the Dollar
by: Pat Buchanan
If it is the first responsibility of the Federal Reserve
to protect the dollars that Americans earn and save, is
it not dereliction of duty for the Fed to pursue a policy
to bleed value from those dollars? For that is what Chair-
man Ben Bernanke is up to with his QE2, or "quantitative
easing."
Translation: The Fed is committed to buy $600 billion in
bonds from banks and pay for them by printing money that
will then be deposited in those banks. The more dollars
that flood into the economy, the less every one of them
is worth.
Bernanke is not just risking inflation. He is inducing
inflation.
He is reducing the value of the dollar to make U.S.
exports more competitive and imports more expensive,
so that we will consume fewer imports. He is trying to
eliminate the U.S. trade deficit by treating the once
universally respected dollar like the peso of a banana
republic.
Sarah Palin has nailed cold what Bernanke is about:
"We shouldn't be playing around with inflation. It's not
for nothing Reagan called it 'as violent as a mugger, as
frightening as an armed robber and as deadly as a hit man.'
"The Fed's pump-priming addiction has got our small
businesses running scared and our allies worried. The
German finance minister called the Fed's proposals
'clueless.' 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."
Egging Ben on is the Nobel-prize winning New York Times
columnist Paul Krugman. Fed policy is too timid, says
Krugman.
When Bernanke said we are not "going to try to raise
inflation to a super-normal level," he blew it, says
Krugman, and "there goes the best chance the Fed's
plan might actually work."
What the Fed should do, he says, is change expectations "by
leading people to believe that we will have somewhat above-
normal inflation... which would reduce the incentive to
sit on cash."
But "sit on cash" is a definition of saving. Is saving bad?
Once, Americans were taught that saving was a good thing.
Not to Krugman. He wants to panic the public into believing
the money they have put into savings accounts and CDs will
be rapidly eaten up by Fed-created inflation, so they will
run out and spend that money now to get the economy moving
again.
Whatever the economics of this, the morality of it is
appalling.
Imagine a husband and wife with a bright child who are
saving to send the boy to the best prep school, then
Princeton, then, hopefully, Harvard or Yale Law, so the
boy can realize his dream of being a great lawyer and
perhaps one day sitting on the Supreme Court.
Krugman is recommending that the Fed goose the money supply
to cause a general fear of inflation, so that couple will
run and get their money out of the bank and start spending
it, because, if they don't, their own government will start
destroying the value of their savings.
This is Weimar economics.
As for inflation, are not the prices of gold, silver, oil
and other commodities flashing signals that it is on the
way?
In denouncing Bernanke, even the Chinese are not all wrong.
They have followed the monetary policy we created at
Bretton Woods in 1944, where we tied the dollar to gold at
$35 an ounce, while other nations tied their currencies to
the dollar at fixed rates of exchange.
China is being denounced for manipulating its currency when
Beijing is adhering to a strict dollar-renminbi exchange
rate, while our Fed is manipulating the dollar price to
seek competitive advantage.
The other Chinese complaint is that they lent us trillions
to buy Chinese goods and now we are robbing them by
depreciating the dollar-denominated Treasury bonds they
accepted in return for their goods.
Pay back your banker in Monopoly money, and you will find
you are soon unable to borrow from anyone anywhere.
In four years, the American people have delivered three
straight votes of no confidence in the U.S. government.
The Fed, however, retains a confidence that it does not
deserve, when one considers that, when it was created in
1913, a $20 bill could be exchanged for a $20 gold piece.
Today, it takes seventy $20 bills to buy a $20 gold piece,
which means the dollar can buy in 2010 what you could get
for 2 pennies in 1910. Quite a record for a central bank
set up to protect the dollar.
If Bernanke's inflation does not generate growth,
confidence in the Fed will also vanish. Then a crisis
of capitalism will be at hand.
Historians will not deal kindly with the men who traded
the horse of U.S. economic nationalism for the rabbit of
the Global Economy.
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