- The Washington Times - Friday, November 5, 2010


As President Obama restores the Jimmy Carter-era solar panels to the executive mansion, Federal Reserve Chairman Ben S. Bernanke is bringing back Mr. Carter’s monetary policy, running the printing presses faster than they’ve run since lava lamps and disco were in style.

Mr. Bernanke’s plan is to flood the market with currency by buying $600 billion in government bonds and $280 billion in mortgages over the next eight months. The last time America went down this path, the result was stagflation - the devastating combination of high unemployment and inflation. Of course, hovering near 10 percent, unemployment is too high already. Mr. Bernanke told a Boston Fed conference last month that the current inflation rate under 2 percent was “too low,” so he’s going to boost it.

While inflationary policies can provide an artificial lift to employment, the effect is short-lived. Unexpected increases in the inflation rate temporarily deceive workers into thinking they’re getting a better wage offer, and thus, companies can hire workers at a lower real cost. The better wages are illusory because the value of the dollar has plunged. Devaluation may be the true goal because it reduces the value of debt held by foreign countries such as China. If China bought Treasury bonds paying 3 percent interest and we can raise the inflation rate to 4 percent, the U.S. government will effectively make the Chinese pay us 1 percent per year for borrowing our money.

Burning lenders like this comes with a cost. To protect themselves in the future, lenders will insist on a much higher interest rate. This is the lesson of the failed Carter policies of the 1970s, policies we are about to readopt. Congress needs to take action to rein in an out-of-control Fed and send this retro scheme back to the decade in which it belongs.

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