It would have probably been fair to say of Sarah Palin that until a few days ago ‘policy wonk’ would have been an unlikely description, love her or loathe her, of any facet of her complex relationship with American politics.

But now this:

I’m deeply concerned about the Federal Reserve’s plans to buy up anywhere from $600 billion to as much as $1 trillion of government securities. The technical term for it is “quantitative easing.” It means our government is pumping money into the banking system by buying up treasury bonds. And where, you may ask, are we getting the money to pay for all this? We’re printing it out of thin air.

Sarah Palin via Robert Costa- Palin to Bernanke: ‘Cease and Desist’ National Review 7 Nov 10

That’s very interesting on a lot of levels. The piece is coherent and sober and, more importantly, it is aimed directly at a weak point in the current administration’s monetary policy and an electoral vulnerability in the allegiances of establishment Republicans in the newly constituted House of Representatives. Federal Reserve Chairman Ben Bernanke, the champion of this recently announced second round of ‘quantitative easing,’ promised Congress on 3 June 2009 that the Federal Reserve would not ‘monetise the debt‘ of the US government, in other words just print money “out of thin air.” But that seems to be exactly what we are now proposing to do and there are dissenting opinions within the Federal Reserve system itself:

For the next eight months, the nation’s central bank will be monetizing the federal debt.

This is risky business. We know that history is littered with the economic carcasses of nations that incorporated this as a regular central bank practice. So how can the ['quantitative easing'] decision made last Wednesday be justified?

Richard W Fischer – Recent Decisions of the Federal Open Market Committee: A Bridge to Fiscal Sanity? Federal Reserve of Dallas 8 Nov 10

So which is it? Well, that all depends on whose telling the story. But it’s already a done deal.

There is a lot of chatter on the financial blogs that ‘quantitative easing’ is a stealth bailout, that it is an opportunity for financial institutions to improve liquidity by taking positions in advance of government bond purchases and that it will result in considerable inflation of basic commodities and weaken the dollar internationally. And it is hard to argue that this analysis is inaccurate given the Federal Reserves somewhat desperate position to get money moving again in the US economy without it being squirrelled away by the manufacturing and retail sectors against better times.

In fact, there are increasingly vocal objections from the Left and the Right over this latest Federal Reserve policy. So what is Sarah’s play? Well, back on 22 September the third-ranking Congressional Republican weighed in:

Washington, DC – Rep. Cathy McMorris Rodgers (R-WA), Vice Chair of the House Republican Conference, released the following statement today after the Federal Reserve announced it will inflate the currency by $600 billion in a new round of “quantitative easing.”

“I am strongly opposed to the Fed’s decision to debase the American dollar by $600 billion.  While the Fed claims its action will ‘stimulate’ the economy, it will fail just as badly as President Obama’s ‘stimulus’ because it promotes short-term consumption, debt, and uncertainty in the private sector while penalizing working families, retirees, and especially entrepreneurs who need a large pool of savings to start new businesses, expand current ones, and stay on the cutting-edge.”  

Karl Denninger – Cathy McMorris (R-WA-5) Condemns Bernanke Market Ticker 3 Nov 10

But since then? Crickets… Interestingly enough most within the establishment Republican leadership have said nothing on this issue. No prizes guessing why. And Sarah has now stepped up to the plate with a policy Republicans will be squirming to argue against, no matter what their lobbyists are telling them.

This seems a reasonably mainstream Republican position for the Tea Party caucus to rally behind as an opening gambit against traditional House Republicans with the Obama administration as the ultimate target. We’ll see. The price of petrol at the bowser and basic commodities like food will be the success indicators for this strategy and if they go up one could expect some mileage out of this in the short term. Sarah seems to be betting they will and she may be taking good advice. Anything else is just wishful thinking.

As for more long term issues, consider the long-standing and rarely mentioned Tea Party policy of ‘auditing the Fed.’ This has support from both the Tea Party and some progressives. Have a look at HR 1207, the Federal Reserve Transparency Act of 2009, a Ron Paul bill from the 111th Congress with three-hundred and twenty cosponsors, including Michelle Bachmann, Alan Grayson and Dennis Kucinich. That’s the kind of populist issue that might prove an easy victory to the first claimant. Establishment Republicans may be in for more than they bargained for with their Tea Party cohort but if this wave catches it could be enough to inundate unwary Democrats as well.

The presidential election in 2012 will be fought on issues of economic populism and Sarah Palin may have just fired the opening salvo.