The Fed is supposed to be insulated from politics but it is not supposed to be divorced from reality. In the face of the election results, Ben Bernanke’s reported plan for hundreds of billions in additional government bond purchases seems ill advised.
The American people have spoken. Government spends and borrows too much. The electoral repudiation of Big Government was preceded by the emergence of the Tea Party movement, which is transforming debate over our financial nation’s future. Public debt has become Public Enemy #1.
It is arguable whether Bernanke’s first expansion of the Fed’s balance sheet saved us from a depression. He thinks so. After all, he has devoted his entire academic career to studying the notion that lack of liquidity is what caused the Great Depression. But whether he is right or not is beside the point. Liquidity does not solve all future problems.
No depression looms but a public debt crisis does. Bernanke wants to spark inflation, which is a form of taxation, or more like theft. Thrifty Americans who save are getting close to 0% in their savings accounts and money market funds, now Bernanke wants to raid the principal. The bigger danger, however, is setting off a bigger fire of runaway inflation.
The Fed is moving into uncharted waters. Neither Bernanke nor anyone else knows the long-term effects of government debt on this magnitude. But it can be stated unequivocally that Quantitative Easing 2 flies in the face of the message so resoundingly delivered yesterday, whether the average voter understands the intricacies of Fed policy or not.