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

NY Sun Editorial: Palin v. Bernanke

She is now out in front of yet another issue
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The Sun's editors say that Gov. Palin's warning to the Fed chairman puts her out front on the debate over the dollar:

One of the questions in respect of 2012 is how it has happened that the only major Republican figure, aside from Congressman Ron Paul, to stand up and be counted on the dollar is Sarah Palin. She is supposed to be an ex-beauty queen without a lot of sophistication. Yet she is reportedly scheduled to be in Phoenix today delivering a major address challenging the plan of the chairman of the Federal Reserve, Ben Bernanke, to inflate the dollar. Snippets of her text were put up Sunday on the National Review Online and began immediately rocketing around the globe, no doubt in part because of the Palinesque phrasing, in which she called on Mr. Bernanke to “cease and desist.”

Now we don’t mind saying that the Sun has been looking forward to the Alaskan breaking out on this issue. In October 2009, we issued an editorial called “Palin and Paul.” We noted that those waiting for a politician to pick up on the monetary issue were perking up to a posting on Mrs. Palin’s Facebook page. In it she had noted that the Gulf oil states were reported to be negotiating with Russia about abandoning the dollar as a unit of pricing, observed that an official of the United Nations had called for a new world reserve currency, and, most importantly, warned that the value of the dollar was collapsing in terms of gold. Her posting, we wrote, suggested that she was ahead of the rest of the undeclared contenders for 2012.

At the time, the value of a dollar had slid to just less than a 1,000th of an ounce of gold. Today it has plunged to barely better than a 1,400th of an ounce of gold. In other words, in the year since Mrs. Palin took up this issue, the Bernanke Dollar — or the Obama Dollar, or the Pelosi, as we’ve sometimes called it — has lost a third of its value. The chairman of the Federal Reserve is now on an announced plan to try to inflate it further. So far the Congress that has oversight of the Federal Reserve has been largely mute, though there have been some notable exceptions (Congressman Paul Ryan, for example, and Dr. Ron Paul, of course; among the big newspapers, only the editorial page of the Wall Street Journal has been in front of this issue).

We were struck, reading the Robert Costa’s National Review advance on Mrs. Palin’s speech, with the reach of her warning. She attacked QE2, as the second quantitative easing of monetary policy is called, head on.

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The editors conclude, "she is now out in front of yet another issue as there is about to convene a new Congress of the United States in which she has a brace of allies indebted to her for her help in getting elected. Mr. Bernanke seems to have blithely ignored his other critics, but it will be more dangerous to ignore the Mamma Grizzly."

h/t: Benyamin Korn

- JP

Gov. Palin to challenge Fed monetary policy in Monday speech

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NRO's Robert Costa reports that Monday in Phoenix, Sarah Palin will criticize Federal Reserve monetary policy and challenge chairman Ben Bernanke to stop printing money. The Fed, she says, is flirting with inflation. NRO has obtained some excerpts from the governor’s prepared remarks, a few of which we present here (Read the rest at NRO's The Corner blog):

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.

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Where will all this money printing on an unprecedented scale take us? Do we have any guarantees that QE2 won’t be followed by QE3, 4, and 5, until eventually – inevitably – no one will want to buy our debt anymore? What happens if the Fed becomes not just the buyer of last resort, but the buyer of only resort?

All this pump priming will come at a serious price. And I mean that literally: 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. And it’s not just groceries. Oil recently hit a six month high, at more than $87 a barrel. The weak dollar – a direct result of the Fed’s decision to dump more dollars onto the market – is pushing oil prices upwards. That’s like an extra tax on earnings. And the worst part of it: because the Obama White House refuses to open up our offshore and onshore oil reserves for exploration, most of that money will go directly to foreign regimes who don’t have America’s best interests at heart.

We shouldn’t be playing around with inflation. It’s not for nothing Reagan called it “as violent as a mugger, as frightening as an armed robber, and as deadly as a hit man.”

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- JP