On February 24, Ben Bernanke went before Congress to issue a stern warning regarding the national debt. Simply put, it was growing much more quickly than the chairman of the Fed deemed appropriate. Along with chastising the out-of-control spending, Bernanke issued this warning about the possibility of the Fed printing money to pay off Uncle Sam’s credit card: “We’re not going to monetize the debt.”
It took all of nine months for that claim to be proven laughably false.
Last week, the Fed’s continued printing operations, disguised with the technical-sounding label “quantitative easing,” reached a crescendo as the Federal Reserve surpassed China to become the world’s foremost holder of federal government debt. The latest data on Chinese holdings shows that Beijing owns $884 billion in future taxpayer obligations. Bernanke has $891.3 billion — and per the Fed’s own schedule, the printing is going to continue to the tune of hundreds of billions in additional debt purchases. That’s called monetizing the debt.
Bernanke said he wouldn’t do exactly what he’s doing because, historically, printing money to pay off government obligations often leads to the complete economic chaos known as hyperinflation. It would be impossible, then, for the most powerful man within the most powerful bank that’s steering the most powerful economy in the history of the world to tell the only people who can fire him that he’s testing just how many dollars he can print before the rest of the planet finally turns on the greenback — even if that’s really what’s going on.
The rest of the planet, as well as a significant chunk of the United States, is growing weary of the game. When we accuse China of stealing jobs by manipulating its currency, China fires back by noting that we’re doing the very same thing and trying to hide it. Bernanke has printed, then printed more, and has now told the world that he’ll be printing even more. The first trillion didn’t work, but $600 billion will surely do the trick. Meanwhile, the price of corn has nearly doubled in the past year. So has the price of wheat. So has the price of soybeans. You don’t need food, do you?
The Fed’s plan to print money in order to buy government debt has been tried before in other countries, and it doesn’t end well. Japan has printed for years, and has been lucky enough to merely suffer economic malaise rather than all-out collapse. In 2003, Bernanke gave a speech in Japan in which he said that the Japanese central bank simply wasn’t printing enough. He’s had two years to print “enough” here in the United States. Now he’s saying that “enough” wasn’t enough.
Well-known economists are becoming more and more critical of Fed policy, and for good reason. Mike Shedlock, an analyst who goes by the nickname “Mish,” told The Daily Caller that “if the goals [of quantitative easing] were to temporarily give a boost to the stock market or to temporarily lower rates at which businesses could borrow, then one can make a case that QE II succeeded. If the goal was to increase hiring in the US, lower unemployment, boost housing prices, and spur bank lending then it has already failed. Bank credit has contracted 10 consecutive quarters, the unemployment rate is 9.6% and that does not account for the fact that close to six million benefit-paying jobs have vanished in the past year!”
Those who have read Bernanke’s papers or the text of his speeches know that he’s already told the world what he’s going to do next. The printing will continue until either Congress or other Fed governors come together to make it stop. Unfortunately, neither group seems to have the courage to do so. So, to borrow a phrase from Winston Churchill, the Fed’s new role as the primary holder of Uncle Sam’s debt is not the end of the dollar. It’s not even the beginning of the end. But it is, perhaps, the end of the beginning.
Joe Tauke is a business reporter and Boston College graduate.