Dear Chairman Bernanke,Democrats are already up in arms about the letter, but a few things should be noted.
It is our understanding that the Board Members of the Federal Reserve will meet later this week to consider additional monetary stimulus proposals. We write to express our reservations about any such measures. Respectfully, we submit that the board should resist further extraordinary intervention in the U.S. economy, particularly without a clear articulation of the goals of such a policy, direction for success, ample data proving a case for economic action and quantifiable benefits to the American people.
It is not clear that the recent round of quantitative easing undertaken by the Federal Reserve has facilitated economic growth or reduced the unemployment rate. To the contrary, there has been significant concern expressed by Federal Reserve Board Members, academics, business leaders, Members of Congress and the public. Although the goal of quantitative easing was, in part, to stabilize the price level against deflationary fears, the Federal Reserve’s actions have likely led to more fluctuations and uncertainty in our already weak economy.
We have serious concerns that further intervention by the Federal Reserve could exacerbate current problems or further harm the U.S. economy. Such steps may erode the already weakened U.S. dollar or promote more borrowing by overleveraged consumers. To date, we have seen no evidence that further monetary stimulus will create jobs or provide a sustainable path towards economic recovery.
Ultimately, the American economy is driven by the confidence of consumers and investors and the innovations of its workers. The American people have reason to be skeptical of the Federal Reserve vastly increasing its role in the economy if measurable outcomes cannot be demonstrated.
We respectfully request that a copy of this letter be shared with each Member of the Board.
Sincerely,
Sen. Mitch McConnell, Rep. John Boehner, Sen. Jon Kyl, Rep. Eric Cantor
The letter does not address the fact that three month money supply (M2) annualized growth ending August 31 climbed at a remarkable 23.3%.
The letter also does not address the fact that price inflation at the producer level has been escalating since the first of the year---to the point that Paul Krugman has admitted price inflation is higher than he expected!
Further, the letter genuflects at the altar of Keynes by including this comment:
...the American economy is driven by the confidence of consumers....Markets clear. If consumer products are out there, they will be purchased, and a production-consumption structure will emerge based on those prices. Steve Jobs isn't successful selling iPads and iPhones because consumers are confident. He is able to sell them because first he produced the products, second consumers desire the products he has produced, and third the products are sold at a price where the market clears, which also happens to be at a price where Apple can make a profit.
Consumers can be totally unconfident about the economy to the point where iPads and iPhones have only consumer demand at $1.00. If all other products are also bid at such an overall low price level, the factors of production will adjust to the new low price level and products will continue to be produced. Keynesian concerns about "confidence", "animal spirits" etc. have no place in an economy where markets are allowed to clear through pricing.
Bottom line: Republicans know Bernanke is up to no good, but they have no clue as to how. Bernanke will run circles around this crew.
My reading of this is that the Republicans are afraid a further loosening of monetary policy might actually work, at least in the short term, to artificially boost the economy, thus taking some of the heat off Obama going into 2012. These guys are politicians, remember. And they know the Fed is not "independent." That's also why the Democrats are up in arms.
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ReplyDeleteBut the point remains that if they don't understand Bernanke is already printing at double digit rates, they are clueless as to how the Fed operates, which I believe is RW's point.
Well, some Republicans might have no clue about what the Bernank is up to, but I think that the Republicans' leadership is comprised of unregenerate con artists who have a pretty good understanding of how things work.
ReplyDeleteConsider, for example, the claim at GOP.com where it reads that "We believe in the power and opportunity of America's free-market economy". (You can find that under "Issues".) But their leadership knows full well that America's economy is rigged from coast to coast, from the Arctic to the Rio Grande and far offshore, too. And they ought to know this, for they and the Democrats have been as thick as thieves during the process of rigging commerce. In fact, the FRS is perhaps the most obvious example of how America's economy is not a free-market economy.
Once again it's a ruse by these republicans to try and garner respect from their supporters. They know the Fed has been reluctant to try and stimulate the economy further. This "warning" makes them look like they've succeeded in turning back more spending by Obama and the Fed.
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