New Fox News piece: We Don't Need More Inflation, We Need to Put An End to Obama's Job Killing Policies

The new piece starts this way:

The current inflation rate of 2 percent is "too low." That is at least if you believe Federal Reserve Chairman Ben Bernanke. With the economy growing "too slowly to bring down unemployment," Mr. Bernanke's solution is to increase inflation.

The Federal Reserve last week started printing up $600 billion to buy U.S. Treasury Bonds and another almost $300 billion to buy mortgages. The printing more dollars will reduce the value of the dollar just as doubling the number of apples will reduce the price of apples.

A falling value of the dollar is what is called “inflation.” The problem is that this "stimulus" will only temporarily reduce unemployment and get the economy growing by tricking people into making mistakes that they will later regret, mistakes that will cost the country much more in the long run than will be gained by these temporary improvements. With unemployment stuck at least at 9.5 percent for a record 15 months, the desire "to do something" is understandable, but the only people who this policy will help are the politicians currently in office.

You would think that all economists would have learned the lessons of the 1960s and 1970s: higher inflation rates only temporarily reduce unemployment. . . . .

Treasury Secretary Tim Geithner is attacking Governor Palin for agreeing with the points that I made in this piece. China's reasons for making the same argument is undoubtedly quite different from Palin's for the reason that I describe in the piece, but that doesn't make the argument any less true.

Treasury Secretary Tim Geithner on Tuesday called it "a remarkable thing" that former Alaska Gov. Sarah Palin was voicing the same criticism of U.S. monetary policy as China was. . . .

The Fed also responds:

Charles Evans, president of the Federal Reserve Bank of Chicago and a strong supporter of the Fed's easing policy, noted in an interview with The Wall Street Journal that the weak economy and low inflation warranted the Fed's action and that more such purchases might be needed in months ahead if the economic outlook doesn't turn. "I would continue to want to apply accommodative monetary policy until I had some confidence that that situation was changing," Mr. Evans said, noting that $600 billion is a "good place to start" the easing program.

Eric Rosengren, president of the Federal Reserve Bank of Boston and another strong supporter of the easy-money policy, echoed those comments: "As long as the economic outlook doesn't improve dramatically I would expect that we will purchase the entire amount," he said, adding, "if the economy were to weaken and we were to get further disinflation and a higher unemployment rate, then we would have to reflect on whether we should take additional action." Disinflation is a decline in inflation.

Their comments came after top Fed officials, including Vice Chairwoman Janet Yellen and New York Fed President Bill Dudley, in earlier interviews with The Wall Street Journal, New York Times and CNBC, defended the Fed's policy as a needed step for the U.S. economy.

After months of fractious internal debate, the Fed is now in a highly uncomfortable spot. Several officials, including Fed governor Kevin Warsh, Richmond Fed President Jeffrey Lacker and Kansas City Fed President Thomas Hoenig, have in recent days expressed wariness about the program and a willingness to cut it short if there are signsthat inflation is picking up too much. . . .

Evans and Rosengren were appointed during the last two years of the Bush administration. Yellen and Dudley are strong Democrats.

Labels: , , , ,


Blogger Martin G. Schalz said...

Excellent piece Dr. Lott. What bothers I, is the fact that the current administration has consistently shown a pattern of a serious disconnect from reality.

Obama and his cronies seem only to adhere to their twisted version of ideology rather than cold hard facts that prove them wrong every time.

They ignore history, the will of the people, and who is at fault for the current mess we are in.

Did not the last election serve as a mirror for these fools to look into and see whom is too blame? Damn the election! Full stupid ahead Mr. Geithner!

11/17/2010 10:31 AM  
Blogger joetote said...

Dr. Lott,

I must comment also on the Beranke Hyper-inflation plan as I call it.

So let's see if I've got this straight. We are injecting close to 2 trillion dollars (600 billion now plus 1.2 trillion already done) into the money supply. That in turn will devalue the dollar by an estimated 20% according to many economists. As such, it will cost at least 20% more to do business. And this idiot says it will lead to job creation? What am I missing here? And if I'm wrong, someone please explain. My reading of history says what he is doing is idiotic!

Gotta give him credit though. he mimics the Moron in Chief quite well. When in doubt, blame someone else. As he's finding that George as the whipping boy is wearing thin, he gets a new boogey man. Welcome to the club China!

11/19/2010 3:27 PM  
Anonymous Anonymous said...

The one walkaway for me from the latest FED Ben's speech is that the economy is set for another fall. So all the talk of recovery is smokescreen. There's no need for more QE if the economy is on the road to recovery. What they are doing now is pretty much like another electric shock to the hear in an attempt to restart it. You don't shock hearts that are beating.

11/19/2010 3:40 PM  

Post a Comment

Links to this post:

Create a Link

<< Home