Bread and Butter Issues: Free Markets, Monetary Stimulus, Purchase Power and Savings
So the Producer Price Index (PPP) increased at the highest rate since June 2009 (the “end” of the recession), but fear not, inflation hasn’t trickled down to the consumer end yet, say the wizards of smart. Except that it has. You can use all the data you want, American consumers know they are paying much more for virtually everything at stores, supermarkets, and retailers. And yet, despite three failed rounds of monetary stimulus policies and a protracted period of near-zero interest rates, the Fed is contemplating more quantitative easing.
When is this madness going to stop? When will they stop devaluing our currency?
Today, the Fed’s Open Market Committee announced that it would continue the near-zero interest rates through Mid-2015, continue operation twist until the end of the year, and purchase additional mortgage-backed securities at a pace of $40 billion per month. The Fed will continue to distort the housing market by encouraging investments on the basis of how much capital is available instead of real growth in a specific industry.
The Hill posted a story today observing that some Republicans are questioning whether the Fed is carrying water for Obama. Whether they intend to carry water for Obama or not, the insane Humphrey-Hawkins Act, which allows unelected bureaucrats to tamper with the economy and offer monetary stimulus, is forcing the Fed to carry water for Obama’s debt.
In order to achieve maximum sustainable employment, pursuant to the duel mandate of Humphrey-Hawkins, the Fed has kept interest rates near zero for years. This has alleviated the burden of Obama’s astronomical debt because interest paid to shareholders of treasuries is at historic lows. To that end, we only pay about $230 billion per year in interest on the debt. But as Investors’ Business Daily noted in their editorial this week, “If Washington had to pay the average interest now that it paid in 2000 (6.4%), it would be paying $500 billion more each year to stay afloat.”
In other words, without the extraordinary Fed policies, the annual deficits would rise to over $1.7 trillion. Hence, the Fed is covering Obama’s debt rump with low interest rates.
However, this policy comes at a cost – a regressive cost – to consumers and savers alike. The devaluation of the dollar has attenuated the purchasing power of American consumers – who are already experiencing diminished income. Granted that much of the increase in prices is a result of Obama’s other disastrous policies that affect gas and food; however, the weakened dollar is not helping.
Moreover, the Fed’s easy money policy is killing the savings of the precious retirees whom Democrats have launched third-rail demagoguery on their behalf. We need to do a better job explaining to voters how the debt is not just an abstract problem down the road. It is killing our economy now. Among other problems, the Fed’s monetary morphine policies, which have been implemented in order to service Obama’s debt, are depleting the savings of all Americans. There’s no way to find low-risk investments that will net a rate of return which will keep up with inflation, even using the government data (CPI) to measure inflation.
Yes, the near-zero interest rates and the almost $3 trillion of assets in the Fed’s balance sheet come at a grave cost to the American people.
The regressive policies of Obama and the progressives provide us with an untapped source of electoral fodder in this election. There is nothing that exemplifies the vices of big-government doctrine and the virtues of free market doctrine than the rising cost and depleting savings of the American people. The policies that raise the cost of vital goods and services and devalue the dollar – namely high debt, monetary stimulus, ethanol mandates, and EPA regulations – happen to also benefit the ‘evil rich’ corporations; whether they are corporate farmers who benefit from ethanol to the detriment of motorists and food shoppers, or Wall Street bankers who benefit from monetary stimulus to the detriment of all consumers and retirees.
Mitt Romney has shown that he’s willing to take a swing at the curveball of Medicare reform. Why not take a swing at the fast ball up the middle of the plate? These are the issues that provide us with an opportunity to show how conservatism is good for Americans on the bread and butter issues, while nailing Obama with cronyism. Romney needs to show that Obama and his socialists are the ones who give ‘handouts to the rich on the backs of the working man.’
Mitt Romney must repudiate the monetary stimulus, connect the dots of cheap money, debt, and depletion for the American people, and commit to repealing Humphrey- Hawkins.
Cross-posted from The Madison Project