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Since 2008 – Progress Through Politics

Sarah Palin as Policy Wonk

It would have probably been fair to say of Sarah Palin that until a few days ago ‘policy wonk’ would have been an unlikely description, love her or loathe her, of any facet of her complex relationship with American politics.

But now this:

I’m deeply concerned about the Federal Reserve’s plans to buy up anywhere from $600 billion to as much as $1 trillion of government securities.  The technical term for it is “quantitative easing.” It means our government is pumping money into the banking system by buying up treasury bonds.  And where, you may ask, are we getting the money to pay for all this?  We’re printing it out of thin air.

Sarah Palin via Robert Costa- Palin to Bernanke: ‘Cease and Desist’ National Review 7 Nov 10

That’s very interesting on a lot of levels.  The piece is coherent and sober and, more importantly, it is aimed directly at a weak point in the current administration’s monetary policy and an electoral vulnerability in the allegiances of establishment Republicans in the newly constituted House of Representatives.  Federal Reserve Chairman Ben Bernanke, the champion of this recently announced second round of ‘quantitative easing,’ promised Congress on 3 June 2009 that the Federal Reserve would not ‘monetise the debt‘ of the US government, in other words just print money “out of thin air.”  But that seems to be exactly what we are now proposing to do and there are dissenting opinions within the Federal Reserve system itself:

For the next eight months, the nation’s central bank will be monetizing the federal debt.

This is risky business. We know that history is littered with the economic carcasses of nations that incorporated this as a regular central bank practice.  So how can the [‘quantitative easing’] decision made last Wednesday be justified?

Richard W Fischer – Recent Decisions of the Federal Open Market Committee: A Bridge to Fiscal Sanity? Federal Reserve of Dallas 8 Nov 10

So which is it?  Well, that all depends on whose telling the story.  But it’s already a done deal.

There is a lot of chatter on the financial blogs that ‘quantitative easing’ is a stealth bailout, that it is an opportunity for financial institutions to improve liquidity by taking positions in advance of government bond purchases and that it will result in considerable inflation of basic commodities and weaken the dollar internationally.  And it is hard to argue that this analysis is inaccurate given the Federal Reserves somewhat desperate position to get money moving again in the US economy without it being squirrelled away by the manufacturing and retail sectors against better times.

In fact, there are increasingly vocal objections from the Left and the Right over this latest Federal Reserve policy.  So what is Sarah’s play?  Well, back on 22 September the third-ranking Congressional Republican weighed in:

Washington, DC – Rep. Cathy McMorris Rodgers (R-WA), Vice Chair of the House Republican Conference, released the following statement today after the Federal Reserve announced it will inflate the currency by $600 billion in a new round of “quantitative easing.”

“I am strongly opposed to the Fed’s decision to debase the American dollar by $600 billion.  While the Fed claims its action will ‘stimulate’ the economy, it will fail just as badly as President Obama’s ‘stimulus’ because it promotes short-term consumption, debt, and uncertainty in the private sector while penalizing working families, retirees, and especially entrepreneurs who need a large pool of savings to start new businesses, expand current ones, and stay on the cutting-edge.”  

Karl Denninger – Cathy McMorris (R-WA-5) Condemns Bernanke Market Ticker 3 Nov 10

But since then?  Crickets…  Interestingly enough most within the establishment Republican leadership have said nothing on this issue.  No prizes guessing why.  And Sarah has now stepped up to the plate with a policy Republicans will be squirming to argue against, no matter what their lobbyists are telling them.

This seems a reasonably mainstream Republican position for the Tea Party caucus to rally behind as an opening gambit against traditional House Republicans with the Obama administration as the ultimate target.  We’ll see.  The price of petrol at the bowser and basic commodities like food will be the success indicators for this strategy and if they go up one could expect some mileage out of this in the short term.  Sarah seems to be betting they will and she may be taking good advice.  Anything else is just wishful thinking.

As for more long term issues, consider the long-standing and rarely mentioned Tea Party policy of ‘auditing the Fed.’  This has support from both the Tea Party and some progressives.  Have a look at HR 1207, the Federal Reserve Transparency Act of 2009, a Ron Paul bill from the 111th Congress with three-hundred and twenty cosponsors, including Michelle Bachmann, Alan Grayson and Dennis Kucinich.  That’s the kind of populist issue that might prove an easy victory to the first claimant.  Establishment Republicans may be in for more than they bargained for with their Tea Party cohort but if this wave catches it could be enough to inundate unwary Democrats as well.

The presidential election in 2012 will be fought on issues of economic populism and Sarah Palin may have just fired the opening salvo.

Cross-posted at Daily Kos and Red State


  1. but don’t see any analysis that balances one to the other. Either the writer puts forward the positives with very little analysis of the negatives or they do the opposite.

    QE is expected to increase inflation. Some people think that is a negative, but it is actually the goal. Inflation and a weaker dollar makes the debt less onerous. Basically, it means we can pay off the debt for fewer cents on the dollar. Inflation is almost non-existent right now so an increase wouldn’t be to hard on the public. More money in circulation means more money to invest into the economy. A weaker dollar makes imports more expensive while making exports more competitive. Great for workers and American exporters, not so great for consumers.

    The biggest concern I see is that it might spark runaway inflation. That doesn’t seem to be a valid concern, since the biggest concern up until now is that we might enter into a deflationary cycle. Another concern is that the country’s credit rating will deteriorate until it has to pay a higher interest rate for future borrowings.

    In the long run, I doubt it will do much harm. $600 billion is a minuscule amount when compared to the total amount of dollars in circulation.

  2. DTOzone

    Sarah Palin only needs to describe QE as “printing money out of thin air” McMorris Rodgers can make the conclusion that it will hurt people. No one needs to explain it. They win

    All while we’re debating the logistics of the plan that few of us actually understand.

  3. jsfox

    I’d bet this took the Republicans an the wonks in the Palin camp by surprise. And why are they all upset? It might work.

    The last thing Sarah wants let alone the Republicans is an improved economy. They know we are the verge of steady uptick.

    ( hint advertising spending is up across all media. Having been in the business most of my life we are always one of the first in and one of the first out) An improved economy greatly reduces chances in ’12.

    With inflation literally non existent and interests rates down around zero the FED was short of options to continue to move the economy. This could very well be a good priming.

    And it can be suspended easily if inflation start to get to over heated.

  4. jsfox

    I think we should not fall into the trap many seem to be falling into. And that is looking at the $600 billion QE as a lump sum being dropped all at once. This is not the case.

    The Fed said Wednesday that it would buy the bonds at a rate of about $75 billion a month through the middle of next year. The idea is to encourage people to spend more money and stimulate hiring, both ways of accelerating economic growth.

    [emphasis added]

    In other words should inflationary pressure become an issue or other problems begin to arise because of it. It can be suspended.

  5. creamer

    I suspect if congress passed a another stimulus he wouldn’t be doing this. And while Obama supports this I think people lose sight of the fact that the Fed chair is independent.


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