The silver lining in that $600 billion Fed decision

Ryan Streeter

The Federal Reserve's recent decision to buy $600 billion in bonds - another example of the mysteriously-named "quantitative easing" - may have the unintended effect of solidifying GOP policymakers behind an economic growth agenda. House GOP Conference Chairman Mike Pence immediately issued a release, as did Republican study committee Chairman Tom Price, claiming that the decision was the wrong thing for America. It would devalue the dollar, retard growth, and make us less competitive overall. 

In an unanticipated development, Sarah Palin burst onto the scene decrying the decision, earning the praise of the Wall Street Journal's editorial board this morning for her articulate encapsulation of the problem. Palin pointed out that American households will pay more for basics such as food and oil as a result of the Fed's decision, which - to paraphrase her - will end up working against any recognizable set of economic growth policies.

But the most interesting perspective on the Fed's decision, I think, comes from the team over at e21. In an incisive and informative editorial this morning, they argue that the Fed's decision is based on an effort to avoid repeating Japan's mistakes - which is itself a mistake. We should be looking at Italy's past instead. Unlike Japan, the United States has profitable, cash-rich non-financial sector businesses but is struggling with account deficits, public leaders who want to spend their way out of recessions, and expansionary monetary policy. Just like Italy in the 1970s. Remember those pre-Euro days in Italy when one dollar bought what seemed like a gazillion lira? Italy has never really recovered as it never really learned the fundamentals of growth. America, on the other hand, knows something about growth and needs to remember what she knows rather quickly. She needs public leadership on a new growth agenda.

The Fed's own Kevin Warsh opined in yesterday's Wall Street Journal that a clear set of economic growth policies is exactly what we need right now, and that monetary policy is limited in what it can do. Reforming the tax code, regulatory clarity so firms can make decisions, ousting the rent-seekers in favor of the new and entrepreneurial - these are all necessary to get the economy on a growth path.

These are a good start, and it's somewhat ironic that they come from one of the Fed's governors. Given the overall American mood right now, the Fed's decision has likely had a way of training our eyes on the need for a growth agenda. The mid-terms were a referendum on the idea that we can spend our way into recovery. More people seem to be realizing that we cannot mint our way to recovery either. The only path is growth balanced by a healthy measure of austerity - and now it's time for some GOP leadership on what the essential set of policies looks like.

Comments

[Clinton Lovell]

Begging your pardon, but there is no silver lining in the Federal Reserve FOMC action to inflate the currency. We use the liability-inflation method of currency inflation and this only hurts our economy each time we use it. We could just as easily use the equity-expansion system if we (finally) realized that fiscal appropriations, monetary policy, commercial banking and capital markets are all inter-related and require an omnibus solution in order to make a real solution work for the benefit of the stakeholders in the private-sector economy who are NOT bankers.

Please feel free to download my FREE white paper on the Consumption Banking System that addresses all the shortcomings of our current system, plus the monetary policy, fiscal appropriations and capital market management issues:

http://www.capitalismbookstores.com/The-Consumption-Banking-System.pdf