Gov. Palin was right about the fed, the dollar and inflation

Those inflation yard birds are coming home to roost
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In her keynote address at a trade-association convention in Phoenix last November, Sarah Palin criticized the Fed's misguided monetary policy and warned that the U.S. “shouldn’t be playing around with inflation.” Gov. Palin's warnings were quickly dismissed at the time by her political opponents, but inflation seems to be coming home to roost.

Charles Kadlec, a former Seligman & Co. managing director and investment strategist, who also served as economic advisor to Jack Kemp, effectively vindicates Gov. Plain in a forbes op-ed titled, "Higher Inflation Is On The Way":

Reported inflation is headed higher — much higher.

The stakes have seldom been higher. With the unemployment rate still above 9%, and federal debt at record levels, this latest error by the monetary authorities is likely to be the most costly since the Great Inflation of the 1970s. Monetary instability will slow employment growth and further erode confidence in government at the same time that higher interest rates will add billions of dollars to the interest cost on the national debt. Yet, failure to act in a timely basis will lead to an even greater crisis.

When it arrives, the Federal Reserve and its defenders will call it “cost-push” inflation and blame it on economic growth, the weather, Arab sheiks, China, and perhaps greedy companies and labor unions.

The actual cause of the looming crisis is the same as the cause of the Great Inflation of the 1970’s: a too easy monetary policy that has devalued the dollar by 40% against gold during the past two years.

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The price of crude materials in the Producer Price Index (PPI) increased by 3.3% in January alone and now stands 21% above where it was just six months ago. Moreover, during the three months ending January, the rate of advance in the producer price indices for intermediate products, and finished goods have all accelerated into double digit annual rates of advance.

This upward adjustment of prices to the cheaper dollar is beginning to flow through to the consumer. For the past 3 months, the seasonally adjusted annualized rate of advance in the CPI is up to 3.9%, with food and energy prices – the items that have the greatest short-term impact on a family’s budget – accelerating to 3.1% and 27% over the same 3 months. Given the relative magnitudes of the dollar’s devaluation against gold, it is reasonable to expect consumer prices to be rising at a 5% plus annualized rate in the months ahead.

Fed Chairman Ben Bernanke’s assurance during last December’s interview on 60 Minutes that he was “100% certain” the Fed could control an outbreak of inflation above 2% was hubris...

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- JP

Sarah Palin: 'Refudiation' of $600 Billion Printed Out of Thin Air

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The Wall Street Journal has published this letter to the editor from Gov. Palin:

While on a United Airlines flight from New York City to Los Angeles this week, a fellow passenger handed me a copy of the The Wall Street Journal Nov. 15 op-ed by Alan Blinder—"In Defense of Ben Bernanke"—and suggested that I write a letter to the editor if I disagreed with the Princeton University professor's claims. Having read the piece, I told the passenger over my shoulder, "You bet I will."

Prof. Blinder seems blind to the clear and present dangers of QE2. Instead of seriously discussing these dangers, he takes us on an excursion to a Keynesian utopia, a mythical land in which endless government spending is an amazingly effective job creator and investors' confidence in U.S. Treasury bonds somehow increases as we sink ever deeper into debt while the Fed has its printing presses working overtime.

Here are some cold, hard facts from the real world: The first is the 8.7% 2012 unemployment rate predicted by the Survey of Professional Forecasters of the Federal Reserve Bank of Philadelphia. It seems the Obama administration's record spending binge won't result in job creation, but in unacceptably high long-term unemployment. The second fact is that long-term interest rates have actually gone up following the Fed's recent QE2 announcement. The markets took one look at the Fed's pump-priming plans and decided they had to increase interest rates—probably in order to compensate for the expected rise in inflation.

None of this should come as a surprise. Blinders off, common sense engaged, it's time for us to "refudiate" the notion that this dangerous experiment in printing $600 billion out of thin air, with nothing to back it up, will magically fix economic problems that were caused in large part by the government's interfering with our free market system in the first place, and then made worse by the government's reckless spending experiments with our children's fiscal future. Instead of the tired, old Keynesian ideas behind Obamanomics, we need to turn to time-tested practices that are pro-free market rather than pro-big government. Some call this "free-market populism." It's based on the realization that the best way to get the economy moving again is to get government out of the way, let the free market dictate winners and losers, and allow the private sector to grow our economy one job, one paycheck and one American dream at a time. It's the only way we can restore much needed confidence and certainty in our economy. This is the only way we will all be able to soar from New York to Los Angeles and throughout the heartland.

Sarah Palin

Wasilla, Alaska

- JP

Brett Arends: Is Sarah Palin Right About Inflation?

It's on its way
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Brett Arends, who writes the Wall Street Journal's ROI (for Return on Investment) column, admits that when it comes to inflation, Gov. Palin may be about to look quite perceptive:

The more interesting question is about Ms. Palin's broader point: whether inflation is on its way.

If the commodity markets are right, it sure looks like it.

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Wheat prices are now surging... They've risen 36% over the past 12 months.

And there are similar patterns across other agricultural and related commodities.

Coffee has risen more than 60% in the past year. Sugar's up by more than a half. Corn: 43%. Lumber's risen by a third. Cattle: 17%. Oats: 37%. Pork bellies are up by a fourth.

"Prices across the board are surging to their highest levels since the 2008 price spike," says Alex Bos, commodities analyst at Macquarie Securities. "We have an extremely bullish cotton market, and extremely bullish corn market and an increasingly bullish soybean market."

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Don Carson, analyst at Susquehanna Financial, notes that the U.S. may actually be running low on wheat. Inventories, in relation to consumption, are near record lows, he says. And Alan Knuckman, market analyst at Agora Financial, says it's ominous that prices are hitting highs around harvest time, when supplies should be at their greatest. "That's very unusual," he says.

Meanwhile -- as Ms. Palin said -- the U.S. policy of debasing the dollar is driving up commodity prices in dollar terms, as it is driving up prices for other "real" assets, including precious metals.

There is a long-running debate among economists about what really causes inflation: higher costs (so-called "cost push") or just too much money. But right now you don't really have to choose: We have both.

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Which is precisely the more important point the first woman to become both Alaska's governor and the Republican Party's vice presidential candidate was trying to make: the Obama Administration cannot just continue to print paper money and borrow from China to cover its backside, while driving the dollar down. The end result of such recklessness is inflation - the wrecking ball that crushes economic recovery.

- JP

NY Sun: Sarah Palin’s Seoul

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Even the Obama-friendly left wing media was forced to admit that the president failed miserably at the G-20 summit. “Obama’s Economic View Is Rejected on the World Stage,” wrote the New York Times. “Zachary Karabell reports on Obama's mistake going into the summit,” read the subhead at the Daily Beast, which lamented the fact that the president’s letter to his foreign counterparts was doomed to “make things worse.” Obama couldn’t even manage to cut a free trade agreement with the host country of South Korea, a nation which in large measure owes its very existence to 60 years of support from the United States. Why did Obama strike out at the G-20? "It seems the skills and principles of a community organizer don’t translate well into the world of statecraft," opines today's editorial in the New York Sun:

So, just as a thought experiment here, let’s consider what might have happened had America been represented at the Group of 20 Summit not by a former community organizer but by a certain former governor of a state that, like South Korea itself, can see Russia from its door — and, in Free Korea's case, Communist China, too. The big news on the eve of the G20 was how upset our friends overseas are with the plan for a second round of money printing by the Federal Reserve. Mr. Obama took time out from his Asian travels to defend the weak-dollar policy. It turns out that the politician who challenged Mr. Bernanke most pointedly, and substantively, as the G20 was getting set for its meeting was none other than Mrs. Palin.

So one can speculate that had a President Palin been leading our delegation to Seoul, the monetary tensions would have been dissipated. The whole issue of a currency war — a competition over who can keep their currencies low and thus promote their own exports — would have been defanged. No doubt that had Mrs. Palin been leading our delegation in Seoul, her departure would have been preceded by a wave of warnings in the liberal press about our country’s trade deficit. The conceit is that we need to devalue the dollar in order to make it more attractive for foreigners to buy American products.

Mrs. Palin, however, has a plank in her political campaign that would address the trade deficit in a way that neither Mr. Obama, nor any other Democrat, has been prepared to endorse. She wants to move to domestic energy production, opening up the Arctic National Wildlife Reserve and close-in (and safer to drill in) coastal regions for production. Mrs. Palin has a hard-earned canniness about the energy sector that can be matched by few other politicians in the country. She knows that our oil imports are a major part of our trade deficit. So while pursuing a sound-dollar policy that, at least in theory, could hurt our exports, she’d pursue a domestic oil policy that would help our trade deficit.

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It’s not just idle speculation, conclude the editors, to imagine our allies among the G-20 nations reacting positively to an American president "who had a clear and savvy world view and knew where he, or she, was going."

h/t: Benyamin Korn

- JP

James Pethokoukis: Emergence of Palinomics hints at 2012 run

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James Pethokoukis, the Money & Politics columnist for Reuters, writes that the the politics and timing of Gov. Palin's recent op-eds and speeches dealing with monetary policy and the dollar are the latest additions to a mounting stack of evidence that the 2008 GOP vice presidential candidate will make a run for the White House:

Indeed, the campaign team for putative Republican frontrunner and former banker Mitt Romney is assuming she will be in the race. And her upcoming, much-hyped reality television show, “Sarah Palin’s Alaska,” will no doubt play like an extended campaign commercial.

If Palin does run, her views leave her — not for the first time — well positioned to exploit the zeitgeist. Voters right now seem dubious of Big Anything, be it Government, Business or Money. In her 2009 book, “Going Rogue,” Palin offered a rehash of 1980s Reaganomics — low taxes, less government spending, strong dollar. That’s in sync with her recent Fed-bashing. But she also attacked “corporatism” in which government and business conspire against entrepreneurs and consumers. This view fuels Palin’s critique of Obama’s financial reform plan, which she portrays as a creation of Wall Street designed to perpetuate bank bailouts.

Palinomics seems to be rooted in “free-market populism,” a version of conservative thinking that is pro-market rather than pro-business. Palin is a big fan of one of its champions, the University of Chicago’s Luigi Zingales. So it’s easy to imagine her campaigning against corporate tax breaks, say, or in favor of limiting the size of banks. That might not attract much campaign cash from Manhattan bankers or Washington lobbyists, but it could be a compelling formula in the new Tea Party-infused Republican party.

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More to come as the punditocracy continues to try to divine what is written in the tea leaves...

- JP

WSJ's Gigot: Sarah Palin 'leading the pack' on monetary policy

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The Wall Street Journal's Paul Gigot and James Freeman discuss Gov. Palin's "consistent message" on financial matters on "Opinion Journal Live." Gigot says the former Alaska governor "shows a very sophisticated understanding of monetary policy" and "she's leading the pack" of potential 2012 presidential contenders on the issue:


- JP

Sarah Palin: Driving the Dollar Down

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On Facebook Wednesday, Gov. Palin again criticized President Obama for his failure to reign in the Fed's disastrous monetary policy:

Obama’s Clever Way to Punt the Tough Calls: Driving the Dollar Down

In his press conference on Monday, President Obama responded to critics of the Federal Reserve’s decision to start a new round of quantitative easing – a fancy term for printing money out of thin air. He claimed this move would drive up U.S. growth rates. He also warned that “the worst thing that could happen to the world economy, not just ours but the entire world’s economy is if we end up being stuck with no growth or very limited growth.”

The latter is certainly true. It would be a global disaster if the U.S. economy remained permanently stuck in the mud. But the same cannot be said of his claim that the Fed’s experiment in pump priming would automatically lead to increased economic growth. By the time this experiment is over, QE will make us queasy.

Will driving the dollar down in this way do anything to boost U.S. exports? The short answer is not really. A weaker dollar will temporarily boost exports by making our goods cheaper to sell; but inevitably other countries will respond in kind, triggering the kind of currency wars economists are warning us about. It’s precisely to prevent this scenario that World Bank President Robert Zoellick recently came out in favor of some new type of gold standard or “international reference point.”

Will QE2 then at least boost domestic investment? No, again. As I explained in my speech in Phoenix, the reason banks aren’t lending and businesses aren’t investing isn’t because of insufficient access to credit. There’s plenty of money around, it’s just that no one’s willing to spend it. Big businesses especially have been hoarding cash. They’re not expanding or adding to their workforce because there’s just too much uncertainty created by a lot of big government experiments that aren’t working. It’s the President’s own policies that are creating this uncertainty.

The President is an educated man. I would hope that he knows these things as well as you and I do. So why then, if he knows it won’t really boost our exports or our domestic investments, would he still come out in defense of this dangerous experiment? I think the most plausible answer has to do with the debt. As liberal economist Paul Krugman has explained, a little inflation goes a long way towards driving down the value of the enormous national debt Obama has run up. And the higher the inflation, the greater the likelihood he won’t have to take any of the tough decisions needed to bring the deficit back down. In other words, pushing inflation upwards means you can have your cake and eat it too. You can spend all you like and then make the bill disappear by driving down the value of the dollar – buying with one hand the debt your reckless spending is issuing with the other. No need to cut spending, folks, just run the printing presses. It’s a win-win scenario.

Or maybe not. Because I fear there will be plenty of losers if this really happens, not least the millions of Americans who’ll see the value of their incomes and savings eroded. As the chair of the President’s own Debt Reduction Task Force, former CBO director Alice Rivlin explained, this sort of policy is no good. Sooner or later – probably sooner rather than later – it will come back to bite us in the behind. Rivlin warned: “As our debt mounts, the risk grows that our creditors, especially foreign creditors who own half our debt, will lose confidence in our ability to get our house in order and will demand dramatically higher interest rates.” Obviously, that’s even more likely to happen when they figure out that the Fed is deliberately driving down the value of the dollars they already hold. When they do lose confidence, Rivlin explained, that will spell disaster for our economy, “derailing the economic recovery and ballooning the cost of servicing the federal debt.”

If the President was serious about getting the economy moving again, he’d stop supporting the Fed’s dangerous experiments with our currency and focus instead on what actually works: reducing government spending and boosting business investment through good old fashioned supply side reforms (cutting taxes and reducing overly burdensome regulations). Simply running the printing presses in order to avoid paying off your debts is no way for a great nation to behave.

- Sarah Palin

- JP

Sarah Palin: Do WSJ Reporters Read the Wall Street Journal?

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Gov. Palin took to Facebook Monday to answer yet another lamestream media attack dog:

Do Wall Street Journal Reporters Read the Wall Street Journal?

Ever since 2008, people seem inordinately interested in my reading habits. Among various newspapers, magazines, and local Alaskan papers, I read the Wall Street Journal.

So, imagine my dismay when I read an article by Sudeep Reddy in today’s Wall Street Journal criticizing the fact that I mentioned inflation in my comments about QE2 in a speech this morning before a trade-association. Here’s what I said: “everyone who ever goes out shopping for groceries knows that prices have risen significantly over the past year or so. Pump priming would push them even higher.”

Mr. Reddy takes aim at this. He writes: “Grocery prices haven’t risen all that significantly, in fact.” Really? That’s odd, because just last Thursday, November 4, I read an article in Mr. Reddy’s own Wall Street Journal titled “Food Sellers Grit Teeth, Raise Prices: Packagers and Supermarkets Pressured to Pass Along Rising Costs, Even as Consumers Pinch Pennies.”

The article noted that “an inflationary tide is beginning to ripple through America's supermarkets and restaurants…Prices of staples including milk, beef, coffee, cocoa and sugar have risen sharply in recent months.”

Now I realize I’m just a former governor and current housewife from Alaska, but even humble folks like me can read the newspaper. I’m surprised a prestigious reporter for the Wall Street Journal doesn’t.

- Sarah Palin

Unlike their reporter Sudeep Reddy, the Wall Street Journal's editors found much to admire in Gov. Palin's NRO op-ed:

The former Alaskan Governor showed sound political and economic instincts by inveighing forcefully against the Federal Reserve's latest round of quantitative easing. According to the prepared text of remarks that she released to National Review online, Mrs. Palin also exhibited a more sophisticated knowledge of monetary policy than any major Republican this side of Wisconsin Representative Paul Ryan.

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Mrs. Palin's remarks may have the beneficial effect of bringing the dollar back to the center of the American political debate, not to mention of the GOP economic platform. Republican economic reformers of the 1970s and 1980s—especially Ronald Reagan and Jack Kemp—understood the importance of stable money to U.S. prosperity.

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Mrs. Palin is way ahead of her potential Presidential competitors on this policy point, and she shows a talent for putting a technical subject in language that average Americans can understand.

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- JP