By Frank Hill
|You're Gonna Do WHAT with QE3??????|
What it means, for anyone paying attention, is that the Central Bank, under the leadership of Fed Chairman Ben Bernanke is saying the following pretty darned clearly right now:
'Whatever has been done, or not been done, in Washington over the past 4 years just ain't working!'
Think about it for a moment. Why in the world would a single unelected leader of our central bank propose to manipulate the money supply of the United States of America pretty much on his own, with some input and vote from his Board, of course, in order to stimulate the economy and lower unemployment....if everything President Obama and the Democratic Congress passed from 2009-2010 worked exactly as planned?
With the US Senate completely AWOL under the leadership (sic?) of Nevada Democratic Senator Harry Reid and the GOP Congress and President Obama unable to come to any agreement on, well....anything! for the past two years, it appears that Mr, Bernanke has taken the bull by the horns and then rolled the dice, to mix a few metaphors, and said to himself: 'I hope this all works out ok and we don't get gored by explosive inflation one day!'
Here's a pretty good summary of the Fed's actions yesterday in Bloomberg News.
Two things jump out at you pretty starkly. One is that apparently the prospect of low (next to zero!) interest rates for the next 4 years is not the sole determinant of economic growth and investment that many believed as in the 1980's and 1990's. If you had told ANYONE that you could borrow money for 2% in 1980 when interest rates were 21%, they would have thought you had come out of Ward and June Cleaver's 'Leave it to Beaver' neighborhood in the Eisenhower Administration when interest rates were considered low then.
The second thing that jumps out at you is this stark announcement:
'When the Fed’s current program to swap short-term Treasuries with longer-term securities expires at the end of the year, the central bank will also start outright purchases of U.S. government debt, according to Harris, the author of “Ben Bernanke’s Fed: The Federal Reserve After Greenspan.”'So...let's get this straight: The quasi-governmental arm of the US government, The Fed, is going to start to buy up debt, which is now being created by Congress and the President to the tune of $100 billion+ per month, instead of letting the Chinese or the Saudi princes continue to do so (why? are they backing off now?) ...and The Fed is going to pay for this purchase of government debt just how exactly again....with their so-called 'expansion of the balance sheet'?
Isn't that just like making 'money' up out of thin air?
What happens when the Federal Reserve dog finally 'catches' the parked car he was chasing? Now what does that dog do? How does he unlock the door, put the key in the ignition, put his paws on the steering wheel and put his other hind paw on the accelerator to get this economy going again in actual practice?
Is the Fed buying up all this debt going to somehow 'magically' get private businesspeople to start hiring in the face of massive tax hikes, massive new regulations being issued by the Zeuses in Washington and general uncertainty about whether anything good will ever come out of Washington again?
Imagine this, ladies and gentlemen. Long about the early 1980's, Congress and President Reagan had come together to solve the issue of explosive health care inflation which primarily drives up the federal costs of Medicare and Medicaid at 3 times the rate of inflation in the rest of the economy.
No, let's make that President George Herbert Walker Bush 41 and Congress from 1989-1992.
No, let's give President William Jefferson Clinton and two years of a Democratic Congress to begin with and a 6-year term of a GOP Congress time to solve the entitlement crisis from 1993-2000.
Even as late as the year 2000, we had a chance to resolve our differences on the tough Medicare and Medicaid issues, come to some agreement on how to take the upwards cost drivers out of health care in general and guess what?
We would have had balanced budgets for the past 12 years, assuming (and this is a HUGE assumption), we had kept the PAYGO budget mechanisms in place which would have forced Congress to pay for any new expansion of programs, tax cuts or war efforts with higher taxes or spending cuts elsewhere in the budget.
Had we had balanced budgets for the past 12 years, and normal economic growth of course which was disrupted when the oversight of our banking system failed so miserably in 2008, no one today would know who Ben Bernanke is. He could be the starting center for the Washington Wizards or the Charlotte 'Cats for all most people would know.
Because there would have been no need for the Federal Reserve Chairman to feel as if he had to be Superman and he alone is responsible for 'fixing' our economy!
There would be next to zero new debt to finance; the private sector would gladly snap up any new issuances of government-backed debt if there were any issued.
The Fed Chair then might have had the 'most boring job in America' since the first Supreme Court Chief Justice John Jay offered his resignation to President Washington in 1795 stating that there was nothing of any merit for him to do as Chief Justice of the Supreme Court. Ben Bernanke could just walk into work each day, each some oatmeal and fruit for breakfast, make sure the money supply is growing with the economy and then go play tennis or golf or play chess all afternoon.
Our point is that it is the express responsibility of Congress and the President to make these sorts of cataclysmic decisions to resurrect our economy, not one man pulling the levers behind the green curtain like the Wizard of Oz.
This President has failed to 1) either lead his party when in control of Congress to make the right decisions to grow the economy or 2) work with the GOP Congress the last two years to come to some agreement (such as Bowles-Simpson; the debt ceiling compromise, the 'fiscal cliff'...you name it) that will provide some degree of assurance to the business community that some adults are in fact 'in charge' in Washington so they can go about investing and hiring people and making money.
We are tired of seeing Fed Chairman Ben Bernanke 'leading this country' on all economic matters instead of our President and Congress, aren't you?
It is up to you to decide if President Obama has done a great job and deserves re-election for four more years of similar results or not.
We think we have seen enough of this movie.
(Editor's Note: Frank Hill's resumé includes working as chief of staff for Senator Elizabeth Dole and Congressman Alex McMillan, serving on the House Budget Committee and serving on the Commission on Entitlement and Tax Reform. He takes on politics from a fiercely independent perspective at the blog Telemachus).