The global catfight among central economic planners has begun.
The Fed’s $600 billion cash infusion in the economy is ill-fated to be sure, and it hasn’t won many supporters around the globe. Brazilian Finance Minister Guido Mantega put it like this:”It is doubtful the Fed decision will produce any results…Throwing money out of a helicopter doesn’t do any good.”
German Finance Minister Wolfgang Schaeuble attacked the move from another angle: “What the U.S. accuses China of doing, the U.S.A. is doing by different means.”
Just for clarification, I’m not concerned about the German or Brazilian opposition per se; we should pursue policies in our best interest. The problem in this instance is that they are right. Concerning Mantega’s comment, history reminds us that FDR tried the helicopter approach and failed miserably. His Treasury Secretary Henry Morgenthau testified in 1939: “We are spending more money than we have ever spent before, and it does not work. … I want to see people get a job. I want to see people get enough to eat. We have never made good on our promises. … I say after eight years of this administration we have just as much unemployment as when we started … and an enormous debt, to boot.”
Schaeuble has exposed the hypocrisy that underpins the Fed’s move. Geithner actually seemed to get it right in recent weeks when he chastised the Chinese for manipulating the value of its currency, and ultimately the exchange rate with the dollar. The Fed has essentially done the same thing by weakening the dollar on world markets. Unfortunately, Geithner and his fellow central planners lack a moral compass. His arguments with the Chinese about free markets are simply not credible. In a broader sense, the same central planners—Geitherner and others—who argue against market-based decisions in their own countries argue for some sort of quasi-market based environment for currency exchange and trade.
There is a deeper lesson to learn from this ongoing catfight. The chief argument behind socialists is that central economic planning is more efficient; with everyone working together, stability and steady growth can be achieved. Even if this were sound economic policy, it couldn’t work on the global stage anyway. When the economic planners converge, they are never quite able to agree on much in terms of specifics because each nation has its own distinct interests. You can only alleviate this problem with unified global economic planning, also known as a one-world government. This is why Marxists constantly call for banking, climate, and other regulations on a global scale. This is precisely why we should oppose it.
The real solution is a principled approach that honors open markets and free trade. Only when the U.S. lives by these principles can we insist on reciprocity from other nations. Reigning in the Fed is a good first step. Ron Paul’s well-crafted attempt to audit the Fed (HR1207- the Federal Reserve Transparency Act) failed by a 229-198 vote several months ago. The votes will be there in January.
The deeper we slide, the better Ron Paul looks. He’s the only one who called this problem from the beginning. Auditing the Fed is the first step toward its elimination.
Isn’t it a good idea to weaken the dollar? We could export more. That’s what I’ve always heard.
David: In theory that’s true, but there are a few problems. (1) If we take action to weaken the dollor our trading partners might respond in the same manner; this would deflate multiple currencies while nobody would get an export benefit. (2) Even if US goods decline in price because of a weak dollar, the goods we import will rise in price. (3) Every dollar we toss into the economy reduces the value of other dollars proportionally.
We should be experiencing some price deflation now. Contrary to Keynesian fears, this would be healthy in the long run, but massive government spending and expansive Fed policy have kept that from happening. Sooner or later the effect of all those additional dollars will be felt. LBJ and Nixon played this game in the late 60s and early 70s, ultimately contributing to Carter’s economic catastrophe. The bottom line: You can’t spend your way out of a recession or print your way about of debt without paying a heavy price in the long term.