"Inflation is the haunting pestilence of the middle classes; it is the hidden threat that disorganized government always holds over those who try to plan, to save, to be prudent. To be honest in one's day-to-day dealings in a runaway inflation does not make sense. To pay a debt on time is folly. To borrow and spend as fast as possible is prudence. Every man suspects everyone else."
-- T.H. White, "In Search of History"
"Money, money, money, money, money -- can you use any money today? Money, money, money, money, money -- nice new bills that we're giving away."
-- Irving Berlin lyric from the 1950 Broadway musical "Call Me Madam"
Fellow South Carolinian and Federal Reserve Chairman Ben Bernanke may well go down in history as the great enabler of the Obama administration's war on the purchasing power of the dollar. With foreign central banks increasingly reluctant to purchase and hold U.S. Treasury debt, the fed is rushing in where angels in other economic crises have often feared to tread.
It is itself making a market for otherwise unmarketable debt with dollars created out of thin (very thin) air -- initially $600 billion of them. More are promised "as needed."
Economists call this "monetizing" the debt, and the practice has a storied history, one more associated with currency-laden wheelbarrows than grocery shopping carts. See China in the 1930s, Germany in the '20s, the Confederacy in the Civil War, and a young United States in the Revolution, when the expression "not worth a Continental" was in vogue.
Mr. Bernanke's stated aim is to drive long-term interest rates down and U.S. inflation, which he deems too mild, up. But why, unless you are a dollar-flush dictator in North Korea or a famously crooked president in Afghanistan with nowhere else to park suitcases full of cash, would you want to invest in the U.S. bond market, when the Federal Reserve is actively working to make your investment worth less over time?
If you're into conspiracy theory, what better way to make trillion dollar deficits disappear and manage an obscene national debt than by tanking the dollar? In essence, the U.S. government then would make interest payments and redeem debt instruments with drastically devalued dollars, dollars potentially worth little more than the paper they are printed on.
Is this not what worries U.S. creditors, foreign and domestic, today? Is it not what should worry you if your savings and dollar-denominated retirement accounts are hostage to the Federal Reserve's power to ramp up inflation, and its far less certain power to ramp it down?
A few years ago, the Turkish lira traded at roughly $1.6 million to the U.S. dollar. Almost overnight, the government there lopped six zeroes off the old lira and issued a new one trading at 1.6. Financial sharks made out all right (they always do), but some less sophisticated "folks," as President Obama might characterize them, did not. This was Gresham's Law in action -- bad money drives out good. Can you not foresee a time in America's near future when the once mighty U.S. dollar is supplanted by a new one, its purchasing power and rate of exchange for the old one determined by a faceless few in a Washington financial inner sanctum?
This administration, as the one that preceded it, has been obsessed with China's supposedly undervalued currency. Despite much sanctimonious harrumphing, it has singularly failed to persuade Beijing to raise the yuan to what our government considers a more realistic value. Were it to do so, Chinese exports would cost the American consumer more (how would you like that, folks?), and American exports to China cheaper.
Theoretically, this would be a boon to U.S. manufacturers and, coincidentally, U.S. labor unions. It would, perhaps, bring down stubborn U.S. unemployment rates a little. Certainly, it would also increase the cost of living in America, especially for those at the lower end of the economic scale. For a very modest increase of employment in our relatively small manufacturing sector, we likely would pay a substantial price in terms of inflation. Is this really a sensible plan to restore a battered U.S. economy? Is this what the Obama administration expects? Is this what the folks want?
When the dollar was king, the reserve currency of the world, the U.S. economy thrived. When a "cheap dollar" policy was pursued, and federal spending began to grow at alarming rates, as it does now, the economy has faltered. Today there is genuine fear in America that dollars saved might be dollars worthless tomorrow. A rush into commodities and especially gold (currently $1,400 an ounce) is well under way.
I am a firm believer in the collective wisdom of the American people. At no time in recent electoral history has that wisdom been more apparent than it was on the second of this November. The monetary policies of the Federal Reserve, and the fiscal policies of the George W. Bush and Obama administrations were soundly rejected.
The American people, the entire world actually, know intuitively that trillion dollar deficits enabled by the Federal Reserve's printing press are leading our country down a well-traveled road to economic disaster and, as history so often has shown, to radical changes in political systems antithetical to liberty and freedom.
See Germany in the dying throes of the Weimar Republic. See Russia after overthrow of the Czar. See China at the dawning of the Age of Mao.
