Firing Up the Presses

Obama and the Federal Reserve are poised to print even more U.S. currency.

In 2008, president Barack Obama made a statement that must now be looked upon as surreal, considering how completely disconnected it was from what he and the Democratic majority in Congress actually did for the past two years. "We cannot sustain a system that bleeds billions of taxpayer dollars on programs that have outlived their usefulness, or exist solely because of the power of a politicians, lobbyists, or interest groups. We simply cannot afford it....We will go through our federal budget--page by page, line by line--eliminating those programs we don’t need, and insisting that those we do operate in a sensible cost-effective way," said the president.

Now, in direct contrast to the newly-elected Republican House majority and its stated intention to trim government spending, Federal Reserve Chairman Ben Bernanke is pursuing "QE2," another round of quantitative easing, costing taxpayers an additional $600 billion dollars -- in newly-printed money.

It is a course of action currently being condemned around the world.  German Finance Minister Wolfgang Schauble accused the Obama administration of hypocrisy: "It doesn't add up when the Americans accuse the Chinese of currency manipulation and then, with the help of their central bank's printing presses, artificially lower the value of the dollar." Chinese Finance Vice Minister Zhu Guangyao added, "As a major reserve currency issuer, for the United States to launch a second round of quantitative easing at this time, we feel that it did not recognize its responsibility to stabilize global markets and did not think about the impact of excessive liquidity on emerging markets."   And Zhou Xiaochuan, head of the People's Bank of China: "we can understand the Fed's QE2 policy, from the angle that it wants to revive the U.S. economy and increase employment. But the problem is the dollar is the global reserve currency."

Yet the clearest assessment of quantitative easing was expressed by Luxembourg Prime Minister Jean-Claude Juncker, chairman of the euro-zone finance ministers:  "I don't think it's a good decision. You're fighting debt with more debt."

Barack Obama defended QE2, echoing Mr. Bernanke's sentiments that the move was designed to stimulate growth in America's economy:   "I will say that the Fed's mandate, my mandate, is to grow our economy. And that's not just good for the United States, that's good for the world as a whole.  And the worst thing that could happen to the world economy, not just ours, is if we end up being stuck with no growth or very limited growth."

Yet a devalued dollar is already showing it effects.  Gold has hit a record high of $1400 an ounce, and oil prices have surged to a two-year high.  Food prices are also surging, a reality to which anyone shopping for groceries can attest.  Perhaps Mssrs. Obama and Bernanke could explain how higher prices will stimulate the consumer demand necessary for reviving the economy.

But there is something far more troubling emerging here.  First, the notion that government can "stimulate" growth has proven to be a dubious contention at best.  $800 billion of stimulus hasn't relieved unemployment in any significant way, nor has it stimulated economic growth, which is hovering near 2% annually.

Second, the history of government intervention, aka Keynesian economics, is a proven failure.  Despite all denials by the Left, the combination of interventionist policies adopted by both Herbert Hoover and FDR prolonged the Great Depression.  FDR's Treasury Secretary, Henry Morganthau summed up this failure:  "We have tried spending money.  We are spending more than we have ever spent before and it does not work...I say after eight years of this administration, we have just as much unemployment as when we started...and an enormous debt to boot!"  Sound familiar?

Yet the most troubling aspect of QE2 is this: less than a week after the Obama administration's economic policies were thoroughly repudiated by the electorate, the will of that electorate is being completely ignored.  QE2 is $600 billion worth of demonstrable contempt for a voting public appalled by the recklessness of federal spending, and the determination to pursue policies completely antithetical to the wishes of a substantial majority of Americans.

Many Americans (myself included) have been wondering whether Mr. Obama would recognize the size and scope of the "shellacking" Democrats just endured and move to the center as a result.  QE2 is perhaps the clearest answer that this administration will continue to pursue its agenda, regardless of public antipathy.  Fed  board member Kevin Warsh undescores the irresponsibility of that agenda: "The Federal Reserve is not a repair shop for broken fiscal, trade, or regulatory policies."

So what should Mr. Obama be doing?  Exactly what he promised to do in the opening paragraph of this piece.  And if he needs any help, he could revisit an extensive analysis of government spending already undertaken once before. In 1984, The Grace Commission report was presented to Congress.  According to  its recommendations, "$424 billion could be saved in three years, rising to $1.9 trillion per year by the year 2000."  Furthermore, it concluded that as much as one third of all incomes taxes collected is consumed by the federal government's "waste and inefficiency" and another third "escapes collection" due to our underground economy.

Even more revealing was this statement:

With two-thirds of everyone's personal income taxes wasted or not collected, 100 percent of what is collected is absorbed solely by interest on the Federal debt and by Federal Government contributions to transfer payments. In other words, all individual income tax revenues are gone before one nickel is spent on the services which taxpayers expect from their Government.

And that was back in 1984.  For perspective's sake, consider federal expenditures for 1985, '86 and '87 from which the Grace Commission's $424 billion dollars in savings would have been produced:  in 1985, the feds spent $946, billion.  In 1986, it was $990 billion.  And finally, in 1987, the federal government spent $1.003 trillion dollars.

Thus, the total outlay for those three years combined equals just under three trillion dollars.  This year alone the federal government has spent almost four trillion dollars.

Even if one assumes that the current budget, which is twenty five percent higher than the combined totals for the three years cited above wouldn't yield a single penny in additional savings, is it unreasonable to assume the identical $424 billion could be lopped off the current outlay?

I suspect Americans didn't hand Republicans 61 seats (and counting) in the House of Representatives and 6 in the Senate in order to re-arrange deck chairs on the Titanic wreckage our federal government has become.  The Grace Commission Report could be a great source of information as to the most effective means of bringing this country back to fiscal sanity.

Take it out of mothballs, Republicans.  The country you save could be your own.

Arnold Ahlert is a contributing columnist to the conservative website,