Republican Letter To Bernanke Bashes Quantitative Easing
They haven't threatened to treat him "pretty ugly," as presidential primary candidate Rick Perry has suggested he might, but the Republican party leadership, in a letter to the Federal Reserve, has made it clear they want Ben Bernanke to stop trying to stimulate the economy.
In the letter, Sen. Mitch McConnell, House Speaker John Boehner, Sen. John Kyl and Rep. Eric Cantor instruct the Fed to resist pressing down on interest rates to encourage investment. They tell the Fed to not engage in another round of buying U.S. Treasurys, or quantitative easing. Their central arguement is that a loose monetary policy will cause inflation and that similar recent efforts to juice American business haven't worked. The Fed announces its policy Wednesday.
From the open letter, posted on the Wall Street Journal:
It is our understanding that the Board Members of the Federal Reserve will meet later this week to consider additional monetary stimulus proposals. We write to express our reservations about any such measures. Respectfully, we submit that the board should resist further extraordinary intervention in the U.S. economy, particularly without a clear articulation of the goals of such a policy, direction for success, ample data proving a case for economic action and quantifiable benefits to the American people.
It is not clear that the recent round of quantitative easing undertaken by the Federal Reserve has facilitated economic growth or reduced the unemployment rate. To the contrary, there has been significant concern expressed by Federal Reserve Board Members, academics, business leaders, Members of Congress and the public. Although the goal of quantitative easing was, in part, to stabilize the price level against deflationary fears, the Federal Reserve’s actions have likely led to more fluctuations and uncertainty in our already weak economy.
The letter has drawn baffled responses from commentators such as former George W. Bush speachwriter David Frum, who latches onto the suggestion later in the letter that the Fed's actions will "promote more borrowing by overleveaged consumers."
"Are they serious?" Frum writes. "We are living through the most rapid deleveraging of the American consumer since the 1930s."
The letter also implies that a weakend dollar through quantitative easing is bad for the American economy, whereas many economists tend to think that it encourages foreign countries buying American goods, and thus leads to jobs in the U.S.
Business Insider has posted its favorite response to the Republican letter, which comes from BTIG's Dan Greenhouse:
Despite protestations to the contrary, Ben Bernanke is not an idiot. He knows, as does the entire economics community, that unemployment cannot be lowered in the long run through increases in inflation. Nobody honestly believes this. However there is a growing chorus of economists that suggest a burst of inflation in the short run is hardly the worst thing in the world. Ben Bernanke is not one of those economists which makes the attacks on the Fed so interesting.
The Republican moves against the Fed, refered to as "going Soprano" by The new Republic, has been interpreted by liberal commentators like Michael Tomasky as a purely political tactic. Robert Reich argues that this is just another example of Republicans using the Fed, which is an independent agency, as a political scapegoat.
However, according to Daniel Indiviglio of The Atlantic, political attempts to sway Fed policy are no big deal. Afterall, Democrats do it all the time, he writes.
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