Ben's big bluff: The political implications

Last week I listed some of the possible economic perils of unleashing a new round of “quantitative easing.” The events have, as usual, a political aspect that needs attention. With just a few weeks left until the 2012 elections, the Fed’s mid-September monetary intervention makes short-term speculation more profitable. Rewarding such market behavior through record low interest rates could boost the Wall Street numbers long enough to create the illusion of a robust economic recovery. The White House relies on just such developments to persuade undecided voters from the so-called “battleground states” to favor the current administration.

QE3 may get Barack Obama reelected despite a pathetic economic record, making him the first incumbent in more than seven decades to win another term by prolonging a depression. It may help Ben Bernanke to be reappointed to the most powerful office in the world, Fed chairman. It may also earn a few CEOs obscenely large bonuses. What QE3 cannot do is create incentives for governments to live within their means and for households to save for their future. Neither can it inspire confidence in our entrepreneurs to invest the mountains of idle cash in productive activities that create conditions for long-term expansion.

The new phase of monetary easing (and note how the Fed avoids using the term “stimulus,” which has become a dirty word thanks to President Obama’s policies of the last four years) increases volatility in the housing and energy sectors with predictable economic and political repercussions. It creates additional traps and roadblocks for our economy in the years to come. It fuels the progressivist propaganda machine that portrays capitalism as an unstable system. It makes it much easier for future generations to swallow the “noble lie” that government interventions in the market are indispensable.

Nether the president’s Recovery and Reinvestment Act nor Bernanke’s QE3 are the cure for our ailing economy—both are like ordering unlimited free booze in an attempt to cheer up the crowd at a funeral. The fact that the Federal Reserve engages in such desperate anti-crisis measures after four years of multi-trillion dollar bailouts and fiscal stimuli is proof that the old Keynesian religion has failed … again. We have been wandering in the dark without a compass or a leader long enough, and the last thing we need under the circumstances is more of what the Republican vice presidential candidate Paul Ryan called “sugar-high economics.”

It is time to turn back to this nation’s traditional intellectual and spiritual values and to stand once again on the fundamental principles that restored America’s strength 30 years ago. Remember Ronald Reagan’s warning:

“Freedom is never more than one generation away from extinction. We didn't pass it on to our children in the bloodstream. It must be fought for, protected, and handed on for them to do the same, or one day we will spend our sunset years telling our children and our children's children what it was once like in the United States when men were free.”