Sarah Palin as Policy Wonk

It would have probably been fair to say of Sarah Palin that until a few days ago 'policy wonk' would have been an unlikely description, love her or loathe her, of any facet of her complex relationship with American politics. But now this:
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. The technical term for it is “quantitative easing.” It means our government is pumping money into the banking system by buying up treasury bonds. And where, you may ask, are we getting the money to pay for all this? We’re printing it out of thin air. Sarah Palin via Robert Costa- Palin to Bernanke: ‘Cease and Desist’ National Review 7 Nov 10
That's very interesting on a lot of levels. The piece is coherent and sober and, more importantly, it is aimed directly at a weak point in the current administration's monetary policy and an electoral vulnerability in the allegiances of establishment Republicans in the newly constituted House of Representatives. Federal Reserve Chairman Ben Bernanke, the champion of this recently announced second round of 'quantitative easing,' promised Congress on 3 June 2009 that the Federal Reserve would not 'monetise the debt' of the US government, in other words just print money "out of thin air." But that seems to be exactly what we are now proposing to do and there are dissenting opinions within the Federal Reserve system itself:
For the next eight months, the nation’s central bank will be monetizing the federal debt. This is risky business. We know that history is littered with the economic carcasses of nations that incorporated this as a regular central bank practice. So how can the ['quantitative easing'] decision made last Wednesday be justified? Richard W Fischer - Recent Decisions of the Federal Open Market Committee: A Bridge to Fiscal Sanity? Federal Reserve of Dallas 8 Nov 10
So which is it? Well, that all depends on whose telling the story. But it's already a done deal. There is a lot of chatter on the financial blogs that 'quantitative easing' is a stealth bailout, that it is an opportunity for financial institutions to improve liquidity by taking positions in advance of government bond purchases and that it will result in considerable inflation of basic commodities and weaken the dollar internationally. And it is hard to argue that this analysis is inaccurate given the Federal Reserves somewhat desperate position to get money moving again in the US economy without it being squirrelled away by the manufacturing and retail sectors against better times. In fact, there are increasingly vocal objections from the Left and the Right over this latest Federal Reserve policy. So what is Sarah's play? Well, back on 22 September the third-ranking Congressional Republican weighed in:
Washington, DC – Rep. Cathy McMorris Rodgers (R-WA), Vice Chair of the House Republican Conference, released the following statement today after the Federal Reserve announced it will inflate the currency by $600 billion in a new round of "quantitative easing." "I am strongly opposed to the Fed’s decision to debase the American dollar by $600 billion.  While the Fed claims its action will ‘stimulate’ the economy, it will fail just as badly as President Obama’s ‘stimulus’ because it promotes short-term consumption, debt, and uncertainty in the private sector while penalizing working families, retirees, and especially entrepreneurs who need a large pool of savings to start new businesses, expand current ones, and stay on the cutting-edge."   Karl Denninger - Cathy McMorris (R-WA-5) Condemns Bernanke Market Ticker 3 Nov 10
But since then? Crickets... Interestingly enough most within the establishment Republican leadership have said nothing on this issue. No prizes guessing why. And Sarah has now stepped up to the plate with a policy Republicans will be squirming to argue against, no matter what their lobbyists are telling them. This seems a reasonably mainstream Republican position for the Tea Party caucus to rally behind as an opening gambit against traditional House Republicans with the Obama administration as the ultimate target. We'll see. The price of petrol at the bowser and basic commodities like food will be the success indicators for this strategy and if they go up one could expect some mileage out of this in the short term. Sarah seems to be betting they will and she may be taking good advice. Anything else is just wishful thinking. As for more long term issues, consider the long-standing and rarely mentioned Tea Party policy of 'auditing the Fed.' This has support from both the Tea Party and some progressives. Have a look at HR 1207, the Federal Reserve Transparency Act of 2009, a Ron Paul bill from the 111th Congress with three-hundred and twenty cosponsors, including Michelle Bachmann, Alan Grayson and Dennis Kucinich. That's the kind of populist issue that might prove an easy victory to the first claimant. Establishment Republicans may be in for more than they bargained for with their Tea Party cohort but if this wave catches it could be enough to inundate unwary Democrats as well. The presidential election in 2012 will be fought on issues of economic populism and Sarah Palin may have just fired the opening salvo. Cross-posted at Daily Kos and Red State

Tags: foreclosure, bailout, mbs, rmbs, Sarah Palin, quantitative easing, Economy, Wall Street, TARP (all tags)

Comments

8 Comments

Inflation is your friend

If you are not rich inflation, slow steady predictable inflation is your friend. Say 4% a year. It makes the rich people have to put their money into play or lose it. That creates investment and provided that investment is sound will cause economic growth.

 

It also bails out those who got greedy with real estate.  Currently large portions of the middle class are underwater on their mortgages so the basic innovation engine of making goods that the middle class will buy is slow.

 

The middle class is key because they have enough money to pay a large margin for a new goods or service like computers in the 1980s.  The very rich also have the money but they don't have the numbers, Bill gates got rich selling to the middle class, Cray who make super computers didn't get rich selling to the rich who could afford better computers, instead the rich just bought the same computers as the middle class.

 

If the middle class doesn't have money to spend the entire economy suffers.  The poor benefit eventually, used computers today are $200 and nearly everyone in America can afford that, due in part to the middle class from 1980-2010.

by donkeykong 2010-11-10 03:17AM | 0 recs
Congratulations!

A substantive progressive diary on MyDD!

I just skimmed as I am entering a MONSTER of a day.  I'll try to get back and engage with it tonight.

Now let's see if people will actually use it to structure a productive discussion.

Kudos Shaun, and thanks.

by Strummerson 2010-11-10 08:51AM | 1 recs
RE: Congratulations!

Agreed! Thanks Shaun for adding something constructive to the front page.

by wasder 2010-11-10 11:08AM | 1 recs
Well there is one good point: inflation does penalize retirees on fixed income.

True there is the COLA which can readjust social security benefits, but what about other sources of retirement?

by MainStreet 2010-11-10 12:49PM | 0 recs
Another example of Palin and Republican foolishness

Core inflation is currently declining and stands at around 1 percent, the Feds target is two percent. Should we go into a deflationary situation, where prices are actually falling, then it becomes incredibly difficult for debtors to pay their debts. This is what made the Great Depression Great. Right now the economy is struggling because of the huge debt overhang it is dealing with. This made worse because of our low inflation rate, and would be made virtually impossible if we begin a round of deflation. People are paying off debt rather than purchasing new things dampening consumption and leaving unemployment high. Quantitative easing is a way of dealing with this when the Fed has a zero interest rate policy on short term interest rates. Not only does Palin and Republicans oppose unemployment, stimulus, bailouts etc, but even the Fed doing something to ease the pain. These are not economic populists but know nothings, or "no" nothings in todays world. The economic policy of the original populists was "cheap money". Remember that "Cross of Gold" speech. It was about adding silver to the monetary base thereby expanding the money supply (printing money), thereby inflating the currency and making the dollar weaker at home and abroad. This was opposed by creditors (Banks) who wanted the money paid back in more expensive dollars. Palin can't even get that right. She's shocked, shocked I tell you, to find the Fed prints money. Which is something its been doing since 1913. She joins among others the Chinese government who see it as means to dampen imports from China. You can oppose the banksters by actually coming up with policies that ease debtors burden. This is what made populists a serious force, and Palin a farce.

by coalminer 2010-11-10 02:53PM | 0 recs
All Good Points

The diary isn't an argument against quantitative easing, although given the current interest rates and the state of the economy it is pretty clear the recovery is extremely slow if tangible.  With GDP increases of around 2% unemployment will probably not improve much at all.  And it's not just 'people' who are paying off debt, businesses aren't spending their money on capacity or expansion.  It's also arguable that the impact of commodity inflation associated with quantitative easing will have a negative impact on margins and consequently the equity markets as well.  We really don't know the outcomes yet, frankly, which makes it a bit of a gamble.  But that's not the point.

I had really intended to note the political aspects of Palin's foray into policy; how it potentially divides Republicans and gives her a bit of leverage in the new House; and how the battle lines might be drawn in 2012 with an economy still in the doldrums.

by Shaun Appleby 2010-11-10 03:08PM | 0 recs
If it was coherent and sober....

Then she probably did not write it. 

by RandyMI 2010-11-11 11:52AM | 0 recs
No Argument There

A comment in this diary cross-posted elsewhere, "If she actually gets in office, this should be remembered as the moment she stopped using her own words."  Derision notwithstanding it is a moment probably worth noting.

by Shaun Appleby 2010-11-11 03:04PM | 0 recs

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