'Refudiation' of $600 Billion Printed Out of Thin Air

November 18, 2010

While on a United Airlines flight from New York City to Los Angeles this week, a fellow passenger handed me a copy of the The Wall Street Journal Nov. 15 op-ed by Alan Blinder—"In Defense of Ben Bernanke"—and suggested that I write a letter to the editor if I disagreed with the Princeton University professor's claims. Having read the piece, I told the passenger over my shoulder, "You bet I will."

Prof. Blinder seems blind to the clear and present dangers of QE2. Instead of seriously discussing these dangers, he takes us on an excursion to a Keynesian utopia, a mythical land in which endless government spending is an amazingly effective job creator and investors' confidence in U.S. Treasury bonds somehow increases as we sink ever deeper into debt while the Fed has its printing presses working overtime.

Here are some cold, hard facts from the real world: The first is the 8.7% 2012 unemployment rate predicted by the Survey of Professional Forecasters of the Federal Reserve Bank of Philadelphia. It seems the Obama administration's record spending binge won't result in job creation, but in unacceptably high long-term unemployment. The second fact is that long-term interest rates have actually gone up following the Fed's recent QE2 announcement. The markets took one look at the Fed's pump-priming plans and decided they had to increase interest rates—probably in order to compensate for the expected rise in inflation.

None of this should come as a surprise. Blinders off, common sense engaged, it's time for us to "refudiate" the notion that this dangerous experiment in printing $600 billion out of thin air, with nothing to back it up, will magically fix economic problems that were caused in large part by the government's interfering with our free market system in the first place, and then made worse by the government's reckless spending experiments with our children's fiscal future. Instead of the tired, old Keynesian ideas behind Obamanomics, we need to turn to time-tested practices that are pro-free market rather than pro-big government. Some call this "free-market populism." It's based on the realization that the best way to get the economy moving again is to get government out of the way, let the free market dictate winners and losers, and allow the private sector to grow our economy one job, one paycheck and one American dream at a time. It's the only way we can restore much needed confidence and certainty in our economy. This is the only way we will all be able to soar from New York to Los Angeles and throughout the heartland.

Sarah Palin
Wasilla, Alaska


I was offended by Mr. Blinder's condescending tone and dubious subject matter. I doubt that many Journal readers do not understand Econ 101. Our economic problem is manifested in insufficient jobs, pure and simple. This is brought on by lack of private investment, which is caused by the uncertain environment created by the Obama administration and the incessant meddling of the Federal Reserve. Thomas Jefferson was prophetic in his distaste for a central bank, especially one that is accountable to no one. It is not obvious to me that Mr. Bernanke will cause only a slight rise in inflation. I remember stagflation of the 1970s that was very debilitating to the economy.

Apparently the members of the G-20 understand the problem better than the professor does, when they see the hypocrisy of the U.S. manipulation of the currency through the Fed's recent activities. Rather than a temporary stimulation of the money supply, they are more likely to set off trade wars raising tariff barriers to U.S. exports, further exasperating the unemployment situation.
If the Fed has to do something, then it should maintain a stable value for the U.S. dollar so that we can develop some confidence.

Allen J. Gunning
Austin, Texas


Mr. Blinder's defense of Mr. Bernanke focuses on the current QE2 uproar but fails to look back at the Fed's full record under Chairman Bernanke. When Mr. Bernanke took over at the Fed on Feb. 1, 2006, the fed funds rate was 4.25% and the yield curve was already threatening inversion. He then proceeded to raise the fed funds rate further to 5.25%, which in total, amounted to a 425% increase in only 24 months.
Predictably, the yield curve screamed recession, the housing bubble collapsed, the subprime mortgage market blew up, the banking system crashed and the world economy nosedived.

The fact is, Ben Bernanke's record speaks for itself and today's critics have heard it loud and clear.

Ronald S. Reich
Park City, Utah

WSJ