Posts Tagged ‘bernanke’

I have said it before and I will say it again, Congress is a rotten, stinking corpse.  It is no wonder that it currently has the lowest approval rating of all time.  This week more ridiculous legislation was introduced in that body that will only make our lives worse.  The bipartisan bill that was introduced would punish any country that practices currency manipulation as an unfair trade subsidy.  It would give President Obama the ability to impose retaliatory protectionist measures to level the playing field.  Of course, the impetus for the legislation is China’s alleged undervaluing of its currency, the yuan, in order to support Chinese exports to other countries.

Now, it’s funny, how the legislation comes in an election year when there is a very strong anti-incumbent mood amongst the electorate.   Many Americans who have lost their jobs in this depression are naturally fixated on statements from Washington dealing with job creation.  So as not to disappoint, Democratic Senator Charles Schumer was quoted as saying, “”There is no bigger step that we can take to promote job creation here in the US than to confront Chinese currency manipulation.”  This sounds logical on the surface, but upon closer analysis the senator as usual has it all wrong.

In the first place, to even threaten protectionist measures in such a fragile economic environment as we live in is dangerous.  The Smoot-Hawley Tariff was passed in 1930 and placed protective tariffs on thousands of imports coming into the United States from abroad.  At the time, during the Great Depression, its purpose was to protect American jobs.  Sound familiar?  Instead, the tariff caused our trading partners to retaliate with tariffs of their own thereby exacerbating an already horrendous employment situation.  What makes our politicians believe that China would not retaliate with protective measures of its own or worst yet cause the collapse of our currency by flooding the world markets with hundreds of billions of dollars it keeps in reserve?

But secondly, and much more importantly to our situation, we need inexpensive Chinese products otherwise our inflation rate would be through the roof and unemployment would be right there with it.  Here is the vicious cycle of events that is American/Chinese trade relations.  China’s products are cheaper because the cost of doing business there is less than in the U.S.  Thus, we purchase Chinese goods with dollars and treasury notes. China holds these dollars and interest-bearing bonds in reserve and then prints yuan to pay off the Chinese suppliers of our purchases.  When the smoke clears, we get cheap Chinese goods to buy, the Chinese manufacturer makes a profit, and the Chinese government acquires more units of the world’s reserve currency.  Everybody wins, right?

If the Obama Administration ends this cycle by imposing protective tariffs on Chinese goods coming into the United States, not only will the Chinese government reciprocate with retaliatory measures of its own, the prices of goods in the U.S. will rise sharply.  You see right now we export our inflation to China by way of treasury bonds and newly printed Federal Reserve notes.  Without the ability to export our debt and a lot of the dollars the Federal Reserve has been printing, all of that liquidity will be spent in the U.S. instead on more expensive goods.  As more money enters our economy prices in general will be bid up and will rise and given how much the Federal Reserve has inflated the money supply over the last few years prices will rise by a lot.  At that point, Economics 101 tells us that high prices will squelch demand and huge increases in unemployment will result.

Since the 1970s, the politicians in Washington have placed us in this no win situation with regard to trading with China.  They have destroyed our industrial base with unconstitutional mandates and regulations, and collective bargaining laws.  They have spent us into oblivion by financing a welfare/warfare state unmatched in human history.  If we impose protectionist measures against China we will incur inflation in the short run and high unemployment in the long run.  If we continue to borrow from China to buy their inexpensive goods we put ourselves on an unsustainable course.  At some point, if it isn’t happening already, China will stop financing our purchases and absorbing our inflation.  They will sell their goods elsewhere and Americans will pay higher prices.  Our standard of living will plummet and China will replace us as the world’s number one economic superpower.

But, Chuck Schumer and his colleagues on the Hill are oblivious to all of this.  Of course, they also ignore the fact that the Federal Reserve is the biggest currency manipulator in the world.  Ben Bernanke and his cabal of economic central planners better known as the Federal Open Market Committee fix interest rates and determine the supply of money.  These actions directly determine the value of the dollar.  Before Congress complains about China for not using market forces to value the yuan it should look in the mirror. 

And that is really why I consider Congress a rotten, stinking corpse.  Time and again its members grandstand for personal political gain and leave the American people with the mess.  Its hypocrisy is appalling.  Lastly, it seems like it is constantly coming up with cockamamie schemes to ruin our economy further.  This latest scheme places the blame on China for our own financial incompetence.

Kenn Jacobine teaches internationally and maintains a summer residence in North Carolina.

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Last week, the Republicans in the Senate once again showed that they are a big part of what is wrong with Washington.  Twenty-two of them joined forty-eight Democrats in voting for Ben Bernanke for another four year term as Federal Reserve chairman.  Do the math.  If those twenty-two Republicans had voted against Bernanke he would have been sent packing by a vote of 52-48.

Now, I know the Fed isn’t going anywhere, so someone else probably just as bad as Bernanke would ultimately have been appointed if he had been rejected.  But the point to be made here is that Senate Republicans squandered a real opportunity to stand on principle.  After all, aren’t they the ones who almost completely stood against Obama’s $800 billion “stimulus” package and continually criticize the Administration for its reckless spending.  In comparison, Bernanke’s wheeling and dealing as Fed chair makes what Congress and the President have spent look like pocket change.  Under Bernanke the Fed has spent $1.25 trillion just on its program to hold down mortgage rates.  And who do the Republicans think printed all that new money and bought all those treasury bonds in order to monetize Obama’s big spending?  It was Bernanke’s Fed which currently holds the notes on over $5 trillion of our national debt.  Thus, the Republicans can lambast Obama for his absurd appetite to spend, and rightly so, but they supported the man who indirectly makes the deficit spending happen.  They are either oblivious to this fact or hypocritical. 

Of course, Senate Republicans will justify their support for Bernanke based on the claim that he is the person whose leadership took our economy from the brink of collapse and placed it on stable ground.  Naturally, no one can prove that and who is to say that we aren’t headed for an even bigger crash because of his inflationary policies.  The big question to ask in refutation of this theory is, if he was so good at handling the crisis how come he didn’t recognize it until it happened?  If one were to go back and look at Bernanke’s appearances on news shows from 2005-2007, it is clear that right up until the end of the bubble he denied its existence and claimed the fundamentals of our economy were strong.  Isn’t a major responsibility of the Fed to recognize trouble and prevent or alleviate the pain of business cycle downturns?  Bernanke was way off on this one and that alone should have cost him his job.

Bernanke has been a complete disaster as Fed chairman.  Additionally, it is just a matter of time before his big government monetary policies cause another crisis.   Senate Republicans, like Orrin Hatch of Utah and Senate Minority Leader Mitch McConnell of Kentucky, have always talked a good game about small limited government.  Then when they have a real chance to actually vote for it and win they fold like cheap lawn chairs.  That is why there is no hope for the current Republican Party to lead us back to the good old days of constitutional, fiscally and monetarily sound government.  That is why many Americans are fed up with our political system.  The next time Republicans gripe about the Democrats propensity to spend us into oblivion remember it was the man chosen by Bush and approved by Senate Republicans that makes it all possible.           

Kenn Jacobine teaches internationally and maintains a summer residence in North Carolina.

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