EDITORIAL: Treasury: Stop the presses

Printing more money won’t ease economic malaise

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The Obama administration has only one answer to bad economic news: more spending. It’s no surprise, then, that there’s now talk of printing up billions in currency to accommodate the reckless fiscal policies that have already sent the economy on a downward spiral.

Last month, retail sales inched up a mere 0.1 percent after declining the month before that. The latest economic growth forecasts have been revised downward to 2.5 percent, which is far less than the 3 percent rate needed just to maintain the current, unacceptable level of unemployment. The one possible bright spot in the picture is that the producer price index, which measures the cost of goods before they reach consumers, fell by 0.4 percent in June. The danger now is that this decline might be considered sufficient easing of inflationary pressure that the Federal Reserve might interfere.

Fed Chairman Ben S. Bernanke has indicated he is not averse to stepping in to stimulate the economy with another round of “quantitative easing” if necessary. This would be a bad move, according to a recent study by the American Institute for Economic Research. In it, former Atlanta Federal Reserve Bank President William Ford shows how this policy hurts not only responsible Americans who save for a rainy day but also those in the market for a job.

Quantitative easing is monetary stimulus, a fancy term for printing up more money in a desperate attempt to bolster the economy by keeping interest rates low. The idea is to reduce the cost of borrowing so that businesses will invest and consumers will spend. Thus, by jump-starting demand, economic growth will follow. It just doesn’t work out that way.

Banks are sitting on trillions of dollars of reserves, businesses are refusing to invest in an environment rife with regulatory uncertainty, and households - worrying about increasingly insecure jobs - are refusing to take on more debt. Lowering interest rates also reduces the income of savers - those Americans who depend on the interest income from certificates of deposit, money-market funds, Treasury bonds and municipal bonds for a significant part of their income. Mr. Ford’s latest estimate of these holdings is between $9.9 trillion and $18.8 trillion.

Taking the most conservative figure, a 1 percent reduction in the yield for holdings of $9.9 trillion would mean a drop in consumption of $52 billion and 493,000 fewer jobs. The average yield on Treasuries in June 2010 was 2.14 percent, which is nearly 5 points lower than the average 7.07 percent rate found in the previous nine recoveries. That translates into a loss of $256 billion in consumption, and 2.4 million jobs. That just happens to be the same number of jobs President Obama claims his stimulus spending spree “created or saved.”

It’s no surprise that the toxic combination of misguided fiscal policy with harebrained monetary policy has produced an endless stream of bad economic news. Having employees at the Bureau of Engraving and Printing working overtime shifts to pump out pallets of greenbacks does nothing to address the root cause of our malaise. Businesses need relief from the worst corporate tax rate in the industrial world and from job-killing regulations. Stopping Mr. Obama’s spending spree would be the best stimulus of all.

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