The Federal Reserve’s War On The Dollar
November 12, 2010 by Chip Wood
Hark! What’s that sound we hear? Why it’s the U.S. cavalry, in the form of 60 new conservative Congressmen riding to our rescue. Just wait until they get to Washington and start changing things.
Oh, wait! There’s another sound coming over the horizon. What is that? Why, it’s dozens of black helicopters, getting reading to fulfill Ben Bernanke’s prediction that he would drop money from the sky, if necessary, to get our sagging economy going again. Watch out! Some $850 billion will start cascading down on our heads.
But enough of the metaphors: Let me make my point as simply and directly as I can. The French have a phrase that applies here: plus ça change, plus c’est la même chose. It means “the more things change, the more they stay the same.”
I wish I could tell you that the elections 10 days ago will transform Washington into a place that never spends more money than it takes in; that never tries to bend the Constitution to permit government to do something our Founding Fathers would abhor; that never tries to wheel and deal for another piece of pork.
Folks, if you think that day has arrived, I’ve got some swampland in Florida I want to sell you. It could become your own beachfront paradise. Sure it could.
A few days before the election, I had the privilege of interviewing former Majority Leader Dick Armey. I have admired him for more than two decades. The first time I introduced him at a conference, he was a freshman Congressman who was sleeping on a cot in his office three nights a week; he flew home to Texas the other four nights.
Dick Armey gave up his powerful post in Congress because he was tired of government growing ever bigger and more wasteful, no matter what he did. He describes a “politics of corruption” fueled by billions (and now trillions) of your tax dollars. But while he’s left Congress, he hasn’t left the battle. He currently serves as chairman of FreedomWorks, one of the inspirations behind the Tea Party movement that led to many dramatic victories on Nov. 2.
“When I came to Washington back in the ’80s,” Armey told me, “entitlements came to 15 percent of the Federal budget. All the rest — some 85 percent — was discretionary spending we could argue about changing.”
Ah, but how different things are now. Today, he said, “85 percent of the Federal budget is entitlements — things that are set in law and can’t be changed, except to go higher.”
His next statement stopped me cold: “If we eliminated every single item that is discretionary today — cut all of them to zero — we would still run a deficit.”
Even if Congress wanted to, it will be almost impossible to roll back Federal spending to where it was before Barack Obama took office. But getting back to the pre-George Bush days is a pipe dream. It won’t happen.
Yes, it is true that every spending bill must originate in the House of Representatives, as I said last week. It is the House, not the Senate or the President, that must authorize every single dollar the Federal government spends. If the House says “no mas,” the money won’t be available. It’s as simple as that.
At the same conference where I interviewed Armey, I also had the opportunity to hear Fox News commentator and syndicated columnist Charles Krauthammer. And let me tell you, if you think he appears smart on TV, he is even more brilliant in person. The crowd was hanging on his every word.
During a Q&A afterwards, I asked Krauthammer if it wasn’t true the House controlled the Federal government’s purse strings. And that if it refused to authorize an expenditure, it couldn’t happen. Period.
While he agreed with my understanding of what the Constitution says, he made it clear that he disagreed with my suggestion. He thought it would be disastrous if the new deficit hawks in the House simply cut off Federal spending for unpopular measures.
He reminded the audience of the time when the then-House Speaker Newt Gingrich shut down the government during the Bill Clinton Administration. “Republicans lost that battle,” Krauthammer said. “I’d hate to see them try it again.”
I’m not convinced they shouldn’t try. I’d love to see some battles rage over some of the most outrageous Federal expenditures. But I wouldn’t expect to win many of them. Consider: If the House does try to roll back spending, what happens next? The bill goes to the Senate, which will still be under the control of liberal Democrats.
In fact, here’s an interesting footnote to all the conservative victories on Nov. 2: The Democrats who won included some of the staunchest leftists in either branch of Congress. It was mostly the more conservative Democrats who lost.
Yes, while the Republican side of the House will be more conservative than it’s been in decades, the Democrat side of the aisle will be even more liberal. Hard to believe? Just wait and see.
But let’s say enough Democrats can be found in the Senate to join their Republican colleagues in taking a slice or two out of gargantuan government. It hasn’t happened in the past — even the funding for the ludicrous “bridge to nowhere” got 82 votes. But let’s say it happens this time. Then what?
Do you honestly believe that Obama won’t veto that bill so quickly you’ll need a high-speed camera to record it? While our spender-in-chief has apologized profusely for the “shellacking” his party got a week ago Tuesday, have you heard him mutter even one word of regret that it was his policies the electorate was rejecting? Me neither. All I’ve heard is his rather extraordinary defense that the majority of voters were too stupid and too scared to appreciate all that his administration has done for them.
So now what? Well, not only will Federal spending remain at astronomical levels, the Federal Reserve is piling on more — a lot more. Bernanke’s “quantitative easing” is nothing more than “creating money out of thin air.” Just how much will the Fed create? Some $600 billion in new credits, plus another $250-300 billion rolled over from last year.
I used to be naïve enough to believe that the primary job of a nation’s central bank was to defend its country’s currency. Everyone in Washington used to pay lip service to this idea, even though it was an open secret that the Fed was doing no such thing. The Fed was an active participant with the U.S. Treasury in the plot to devalue the dollar. But now it’s not even a secret — Bernanke openly boasts about what the Fed is doing.
Helicopter Ben says the Fed wants to push inflation higher. I have no doubt it will succeed. When it does, what will that mean for the dollar? Its value will fall like a brick dropped off the roof. It makes us want to shout, “Watch out below!”
Yes, watch out. Watch out for the falling dollar. Watch out for the purchasing power of every dollar-denominated asset you own shrinking even more. And watch out for the minuscule interest you’ll earn on your savings.
By the way, we can’t blame Obama for foisting Bernanke on us. Remember who first made him chairman of the Council of Economic Advisers? And later appointed him to the Federal Reserve?
It was none other than Obama’s predecessor, George W. Bush. It makes me want to say, “Thanks a bunch, George. Thanks for opening the floodgates to the most destructive wave of government spending history has ever seen.”
That’s enough of the financial wars for today. We’ll return to the political wars next week.
Until then, remember to keep some powder dry.
— Chip Wood