What Ails US

Our point for two years now has been that meddling by the Fed and the Administration was/is counter productive. John Taylor, econ prof at Stanford and fellow at the Hoover Institution joins company with us in a WSJ op ed today.

"Since 2009, Washington has doubled down on its interventionist policy," writes Taylor. "The Fed has engaged in a super-loose monetary policy—including two rounds of quantitative easing, QE1 in 2009 and QE2 in 2010-11. These large-scale purchases of mortgages and Treasury debt did not bring recovery but instead created uncertainty about their impact on inflation, the dollar and the economy. On the fiscal side, we've also seen extraordinary interventions—from the large poorly-designed 2009 stimulus package to a slew of targeted programs including ‘cash for clunkers’ and tax credits for first-time home buyers. Again, these interventions did not lead to recovery but instead created uncertainty about the impact of high deficits and an exploding national debt."

Indeed, both consumer and employer were cheered by the results of the Nov/10 election, spurring a pick up in economic activity, Q4, Q1 that most forecasters missed. Those results held promise for less regulation. Yet administration meddling has continued; regulations are stacked as high as ever; finally, the Fed has done nothing but make things worse by throwing liquidity at an economy that is flooded with liquidity.

So, we haven’t really gotten underway.

Again from Taylor, "Some lament that with the high debt and bloated Fed balance sheet, we have run out of monetary and fiscal ammunition, but this may be a blessing in disguise. The way forward is not more spending, greater debt and continued zero-interest rates, but spending control and a return to free-market principles."

Indeed. And to the extent both Bernanke and BO can learn to sit on their hands, it is to that extent that we will experience real vigor ahead.


Robert Craven