There must be some real possibility that the new round of Quantitative Easing by the Federal Reserve will in fact achieve a resounding success. The proof of this is the open letter to Ben Bernanke from Republican luminaries demanding that he cease and desist immediately. Signers include such scholars of economics like Bill Krystal and Sarah Palin, Krystal has never been right on any question of importance in his entire career and Palin has never met a question of importance that she understood.
They also trotted out a few conservatives with real economics degrees to sign the letter as well. The small problem there is that until the minute they signed this manifesto they had built there entire professional careers on premise that the Fed should print money and give it to rich people. My opinion of regulating an economy by using monetary policy alone is like steering your ship by firing broadsides. It can make things happen but the neighbors don’t like it.
The Obama Administration wasn’t happy with former Fed Chairman Alan Greenspan announcing to the press during the G-20 meeting that the US was devaluing its currency by printing money. Greenspan did during his career regularly fire all guns at once but only when they were aimed at the middle class and the poor. He bragged that the most important aspect of his job was to “maintain a high enough level of worker insecurity to discourage employees from demanding pay raises and benefit increases." He saw this as controlling “wage inflation”.
What he really accomplished was to create a new normal where the middle class holds no wealth but have become corporate serfs with ever increasing debt burdens. The bottom eighty percent holds only 7% of US wealth. Of course a big slice of US wealth isn’t even held by anyone in the US anymore as selling off American assets has been a cash cow for Republican luminaries like Mitt Romney. This gutting of American infrastructure also created trillions in worthless corporate junk bonds that will start coming due in a big way in 2012. (there’s a glyph for this in the Mayan language)
So the problem is that despite what Alan Greenspan and most of the conservative economists have been saying for the last thirty years, you simply can’t have a healthy economy while declining wages reduce the demand for goods to less than the supply of goods. Their solution for this was to replace low wages with debt to increase demand and use up the surplus supply that way.
It’s impossible to continue to do this of course and now consumer debt is shrinking rapidly. If the demand is not replaced by the injection of money into circulation than the whole system collapses. But the way the Fed is putting money into circulation is by giving it to the people at the top. These people do provide a disproportionate percentage of demand, but they don’t really need the money. They aren’t as likely to spend it as say the four million people about to lose unemployment benefits or the 44 million people who could lose food stamps under Speaker Boner. Nor are they going to expand given more money as supply side economics would predict since they are already operating at less than 80% of capacity and are increasing profits by cutting wages (and hence demand so there is even less need to expand).
So why are the Republicans opposing the Fed action? Because all Government is bad and trying to fix problems is bad, let the natural rule. Of course Republicans have never lived by the natural order, they always make sure there are rules that favor them over us common folk, (that’s just the natural order of Republicans). Here comes new monetary policy, time to move inland. Always store your canned goods on high ground. www.prairie2.com