George Will’s column today was too good not to share. Outlining the dangerous endgame of the Fed’s dual mandate (1. “to promote effectively the goals of maximum employment,” and 2. “promote stable prices and moderate long-term interest rates.”), Will shows yet another way in which Congress has shirked its duty and the government can act without the consent of the governed:
The Fed is doing what the executive branch wants done but that the legislative branch will not do – creating another stimulus.
By seeming to do the president’s bidding, the Fed stumbled into a diplomatic thicket. While the president was impotently accusing China of keeping the value of its currency low in order to facilitate exports, many nations were construing America’s quantitative easing as similarly motivated currency manipulation. The primary purpose of quantitative easing might be to force down the yields of government bonds in order to induce investors to invest in corporate bonds and stocks. But when a predictable result of the policy is to devalue the dollar, it is a pointless parsing of words for Treasury Secretary Timothy Geithner, who serves a president who has vowed to double U.S. exports in five years, to say that America will never weaken its currency “as a tool to gain competitive advantage.”
Putting aside for a moment the fact that we’re just going to print some money ($600 billion!) – it shouldn’t be all that surprising that Congress charged the Fed with pursuing maximum employment. Perhaps the overriding political trend of the 20th Century in America was Congress ceding responsibility – and thus, potential blame – to other entities, usually the executive branch (this is how we fight wars now, if you haven’t noticed). Kicking the tough decisions to someone else makes it easier to get re-elected.
Back to the money printing. I enjoyed Richard Crespin recounting the conversation he had with some friends:
Only half listening to their conversation as I navigated rush hour traffic, my ears suddenly perked up when I heard Patty remark, “…and the only way out is for them to inflate their way out.”
I asked Patty what he meant. “Well, when the government goes so far into debt, since it owns the tax machine and the mint, the government can ‘inflate its way out’ by letting inflation rise, devaluing the real cost of the debt and paying back the money it borrowed with dollars that are worth less than the ones it borrowed. Essentially printing money to pay back the debt.”
I asked, “So, you’re saying they’re going to print money?”
“No,” Patty said, “only Third World countries actually break out the printing press. We’ll just do everything short of that.”
Psych! We’re totally gonna get our print on: