Rick Perry and the Fed: Who is Right?

On his second day of campaigning, Governor Perry learned of the modern extension of the 'Your Mike is Always Open' Law, in that it extends to cell phone videos at purportedly private venues.  Perry's remarks about Fed Chairman Ben Bernanke – that the Fed’s continued printing of more money can be considered “treasonous” – were, shall we say, somewhat over the top.  (But then, that’s my opinion, and I am only a gun- and religion-clinging, formerly potential but now full-fledged terrorist, holding the American economy hostage and willing to literally shoot that hostage, just sitting here in the back of the bus.)  I weary of the blatant hypocrisy of the Left – the professional Indignants – yelling that the conservatives who they brand as terrorists, who they accuse of wanting to push old people over the cliff, should be more civil.

Nevertheless, after the shock of the media about Perry’s abrupt choice of words, they had a chance to query him about his degree of repentance over his intemperate remarks.  Perry’s reply: "I am just passionate about the issue, and we stand by what we said."  If the media can get over its attack of the vapours, they can settle on the point that Perry was actually talking about: Bernanke’s ‘quantitative easing’ or printing of money (technically imprecise but the idea fits nonetheless) is a last resort effort that can prove disastrous at worst, or marginally ineffectual at best (based on the experience of the Japanese, the only ones to have really tried this, and who coined the term).  [For a quick lesson on the subject of QE, I highly recommend Paddy Hirsh of Market Place,

and then you have to see QE as explained by teddy bears, as a sop to those in high dudgeon at the moment.] 

Perry is further exercised by the fact that Bernanke pumped more money into the static economy twice (QE1 and QE2), and is considering a third.

Are Perry’s remarks indefensible?  I’ll pass by the technical issue of treason (you have my position above), but what Perry said on the actual topic rings true.  One of his defenders is Larry Kudlow, former Reagan economic adviser, who focuses on the real story – the financial impact of the Fed on the economy:

This is a policy dispute; it’s not a matter of patriotism.  However, and this is an important however, the rest of Perry’s statement suggests that his analysis of Fed policy is right on target. . . .

Let’s take a quick look at Bernanke’s QE2 record of pump-priming: The dollar fell 12 percent on foreign-exchange markets.  The consumer price index jumped over 5 percent at an annual rate.  And the $600 billion cheapening of the greenback led to skyrocketing commodity prices, including oil, gasoline, and food.

That oil-price shock is one of the principal factors behind the 0.8 percent first-half economic stutter.  As a result of the jump in inflation linked to QE2, real consumer incomes slumped badly and consumer spending fell substantially.

Before QE2 the economy was growing about 2.5 percent, even though it was already blunted by numerous tax and regulatory obstacles.  But the cheap-dollar oil shock came perilously close to pushing us into recession.

So it turns out that Governor Perry – even with his overly strong language – is a pretty sharp economic and monetary analyst.

Kudlow includes the names of members of the Fed who also disagreed with Bernanke, and goes on to compare Perry’s position on the subject with Mitt Romney:

What makes Governor Perry’s position even more interesting is his disagreement with former governor Mitt Romney.  When I interviewed Mr. Romney this past April, he essentially defended Ben Bernanke and dollar depreciation.  “Well, you know, I think Ben Bernanke is a student of monetary policy,” Romney said.  “He’s doing as good a job as he thinks he can do in the Federal Reserve.”

And Kodlow concludes with:

My hunch is, just like Ronald Reagan, Governor Perry views a collapsing-dollar threat as more evidence of American decline.  And he is very much opposed to any of that.

Another defender of Perry’s stance on the Fed is David Stockman, former director of the Office of Management and Budget under Reagan.

David Stockman agrees with Obama about Perry's poor choice of words but also wholeheartedly agrees with Perry's sentiment.  "I think he was dead on in his thought. . . . I think it's time Republicans woke up to the fact that is the fundamental problem in our economy today."

Stockman, who has long been a critic of the Fed's low interest rate policy, says it is "totally wrong."  Stockman says "exceptionally low" interest rates have resulted in excessive speculation on Wall Street "that is utterly destroying our capital markets" and adding to the already unsustainable debt crisis.  He goes on to say, "The fact is the Fed is the number one problem holding back this economy, punishing savers, savaging low income people trying to buy food, energy or fuel."

Stockman fears the worst is yet to come when current tax breaks and stimulus come to an end in 2013.  "The mother of all Keynesian contractions is coming in 2013 – when all these tax cuts expire, when all this stimulus is gone." 

What results will be another recession caused by a necessary but painful period of austerity that will crimp growth and job creation.  Therefore, current deficit projections will have to be revised downward as tax revenues fall behind and the millions of new jobs Congress anticipates never materialize.

The reaction of the media and criticism of some pundits has been against the remark about treason, with little reflection on the argument about the Fed and QE.  That would include Karl Rove, but I must caution the reader that Mr Rove, like some other members of the Bush team, supported Kay Bailey Hutchinson in her disastrous attempt to unseat Rick Perry in the last primaries for Texas governor.

Rick Perry knows whereof he speaks on the topic, and we need to have more exploration on the subject rather than bait-and-switch vociferations of Mr Perry's choice of adjectives.