The problem during the Great Depression, all the smart people thought, was that prices were too low. That’s right, with 15-25% unemployment, what people really needed was to pay more for stuff. So Washington did everything it could to prop up prices, including for labor, and yet the economy never picked up and poor and unemployed people remained poor and unemployed.
This might be the single stupidest idea that ever got into Washington’s head, and it went on for years. The only thing that shook it loose was the attack on Pearl Harbor.
Things aren’t quite so bad today. There’s growth, if anemic. Only one in ten is unemployed, although chronic underemployment is quite a bit higher — 22% in California. And what lies behind our problems? You guessed it: Prices are too low. And, this is the real kicker, our own Fed Chairman thinks inflation is too low. So he’s pumping $600,000,000,000 of fairy land money into the economy, monetizing half this year’s deficit (no, wait — a six and eleven zeroes is now only a third!) to prop up prices.
Well, Bernanke is certainly getting his wish, according to today’s NYT. Read:
Cotton prices are near their highest level in more than a decade, after adjusting for inflation, and leather and polyester costs are jumping as well. Copper recently hit its highest level in about 40 years, and iron ore, used for steel, is fetching extremely high prices. Prices for corn, sugar, wheat, beef, pork and coffee are soaring. Labor overseas is becoming more expensive, meanwhile, and so are the utility bills to keep a factory running.
And yet here’s your fearless Fed chairman just last week:
“I think it’s entirely unfair to attribute excess demand pressures in emerging markets to U.S. monetary policy, because emerging markets have all the tools they need to address excess demand in those countries,” he said in answering a question from the audience. “It’s really up to emerging markets to find appropriate tools to balance their own growth.”
But what about our markets, Ben? Low growth and high unemployment ain’t exactly stoking the inflationary fires right here at home — and yet the higher prices are coming, anyway.
Pretty soon, we’re going to have to start rolling over trillions of dollars of short-term, low-interest debt into yet more short-term, higher-interest debt. The part of the Federal budget devoted to just paying the interest on the debt could very well triple in just five years. That would make debt service — just paying the interest, no principle — about equal to defense spending.
And this is how we’re going to achieve the growth necessary to put people back to work and get this debt to a manageable size?
Bernanke’s job is to protect the value of the dollar and promote full employment. Instead, he’s wrecking the dollar and pricing people out of the job market.
It’s time for him to go. Again.