No cutting back: the Bernanke money-printing story(Read article summary)
If this were Greece or Ireland, the government would be forced to cut back. But with quantitative easing ready, there is no need to face the music.
Larry Downing / Reuters / File
We had a brush with democracy yesterday. Very unpleasant. Elizabeth went to vote. Her husband accompanied her.
“Do you really think your vote will make a difference?” we asked as we headed for the polling station.
“No, but if everyone took your point of view we couldn’t have a democracy at all.”
“Wouldn’t that be a good thing?”
“I’m not going to get into a big discussion with you. I’m doing what I think I should as a good citizen. That’s all there is to it.”
The polling station was manned by women. Old women. About 8 of them. There was one old man at the door. There were more attendants than voters when we went in at about 1PM. It was quiet. Still. Of course, this was Florida. But the geriatrics made us think that the whole thing was about to go into terminal care. American democracy, that is.
There was no excitement. No energy. It was as if the election didn’t really matter. As if the results had already been decided. Voters came in. They did what they saw as their civic duty – each one of them hoping to cast the decisive vote and turn the nation into the country he wanted it to be. One wanted prayer in the schools. Another wanted more free pills and drugs. Another wanted to cut spending and close the borders to new immigrants. In California, they want to legalize pot. “Yes we cannabis!” In Oklahoma, they want to forbid state courts from making reference to Islamic Sharia law.
“I just voted for the Tea Party candidates…” Elizabeth reported. “And as for all the other initiatives…sometimes I couldn’t understand what they were really up to. When in doubt, I voted no.”
Elizabeth does not seem to like that “hopey, changey thing” given to us by the Obama Administration. Whether she will like it when the Tea Party takes back America, we don’t know…and we probably will never find out.
And so Election Day passed. And no one got what he wanted. As the private interests, special claims and personal prejudices got put together, crossbred and propagated, one with another, they gave birth to a grotesque and ungainly monster – with a thousand heads…and countless thorny tails…a vast, incompetent, extravagant, ugly, lumbering government with something for everyone and no way to pay for it all.
The voters got what none would have voted for – a gargantua with $200 trillion worth of unfunded liabilities.
Congress is gridlocked. Obama is paralyzed. One party wants to cut social spending– rolling back Obama’s health care initiatives, in particular. The other party won’t let them. It wants to cut military spending, instead. Taxes are automatically going up next year. Everyone says it will be bad for the economy. Yet the two parties can’t agree on how to stop the increases. One wants higher taxes on the rich. The other wants lower taxes for everyone. Here at The Daily Reckoning, we are usually in favor of gridlock in Washington. But not when a tax increase is on the way!
If this were Greece or Ireland the government would be forced to cut back. The politicians would have no choice. The markets would speak. They would have to listen. For where else would they get more money to squander?
But now…with quantitative easing ready…there is no need to face the music. The band has gone as silent as a polling station. If bond buyers will not finance America’s trip to bankruptcy, the Fed will provide as much brand, spanking new money as necessary.
Ben Bernanke is supposed to make the announcement later today. In a stroke, he will undermine the foundations of representative democracy all together. The peoples’ representatives are supposed to decide how much money to raise in taxes. They are supposed to decide what the nation can afford and how it should spend its money. Now, Mr. Ben Bernanke pays the fiddler and calls the tune. Who can say the nation can’t afford more health care? Another war? Free cannabis for everyone? Ben Bernanke can create the money – out of nothing!
He’ll probably announce a big enough number so as not to disappoint the markets. But he won’t be too specific as to when or how…he’ll need to leave the speculators guessing…and leave himself some room to maneuver.
What the heck, the markets absorbed $1.7 trillion of this QE in the last go ’round. It didn’t do any harm, did it? On the evidence, it didn’t do much good either. The money went into the banks and didn’t come out. They could probably take another $1 trillion or so without getting completely saturated. Who knows? If the Fed wanted, it could finance the entire US federal budget deficit…or eliminate the need for taxes completely.
Now, if the economy improves…Bernanke will claim credit. If it doesn’t, well…at least he tried!
And so, investors played it cool yesterday, waiting to see what would happen at the polls and at the Fed. Gold rose $6. Stocks rose 64 points on the Dow.
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