Ben Bernanke is comfortably ensconced in his office, debating the future of our country and his legacy. What has he done so far, and where does he go from here?
First, a quick primer on Quantitative Easing, the policy Mr. Bernanke has been following since March 2009. This video was made in late 2008, as use of QE was being discussed.
So the economy has been stimulated for almost a year by an infusion of money, estimated by some at $10 trillion, created out of thin air. Yet it remains a terrible economy. Not only that, but if left in the marketplace that $10 trillion will lead to inflation the likes of which we have never seen. Some estimate that continued monetary expansion at the current rate could lead to 60% inflation or higher. Possibly much higher.
And the problem will only increase over time.
40% of existing debt matures in the next year. That means $2.8 trillion of debt has to be refinanced. The Treasury must sell on average $90 billion of debt a week! In five weeks, we need to sell $450 billion. That is equal to the largest full-year deficit in history, at least until Obama’s first year.
There are no plans to curb spending or cut deficits. President Obama just increased the debt ceiling by $1.9 trillion. To outsiders, we appear like a banana republic with ICBMs. Does anyone seriously believe that funding based on “the kindness of strangers” is workable much longer? Monty Pelerin
Mr. Bernanke has two options. One is to continue Quantitative Easing, the other is to stop printing money by the end of March, which is what he promised to do when sekeing re-appointment to his seat. Neither will be good for him, for the Obama administration, or for us.
If Bernanke ends QE, he will stop both the economy and the federal government dead in their tracks.Without QE, the government will be unable to honor its obligations. Non-payment of Social Security or Medicare or federal payroll or welfare checks or retirement checks, or military payroll, etc., etc., would show up almost immediately. That would jeopardize foreign (and domestic) purchases of additional federal debt, exacerbating the problem.Bernanke’s second option enables the government to continue operating irresponsibly until market forces eventually stop the profligate behavior. Market discipline would likely be imposed in the form of a collapse of the dollar or raging inflation (or both).Under either scenario, the Obama presidency is destroyed. Ibid.