“Here’s one fact that is indisputable. The intent of Quantitative Easing 2 (QE2), as Fed Chairman Ben Bernanke’s initiative is known, is to push intermediate – and long-term interest rates even lower than they already are. Here is a conclusion that can be stated with certainty: Lower interest rates will bail out the profligate and punish the prudent.” James A. Bacon, ‘Bernanke’s raid on the middle class’, The Washington Times, November 23, 2010
Ben Bernanke justifies QE2 on the ground that it will lower the rate of unemployment in the United States without significantly elevating the rate of price inflation. Even within the Keynesian mesh that seemingly has engulfed a significant proportion of the U.S. economics profession, there are increasing doubts about the model that underpins such an aspiration. World wide, professional opinion considers the argument entirely specious, merely cover talk designed to hide Bernanke’s bid to depreciate the value of the U.S. dollar. Rising gold and other key commodity prices offer strong empircal support for the view that wary investors are hedging their bets against Bernanke’s explicit hypothesis.
When a policy has never delivered on its promise in recorded history, and yet a senior and once widely respected government official, such as Bernanke, continues to roll out a long-falsified theory, thoughtful individuals recognize that something else is afoot. And James Bacon has identified what is really underpinning Bernanke’s policy: as always with government policy, wealth redistribution is central to his behavior.
In this instance, the wealth redistribution planned by the Chairman of the Federal Reserve is of the most despicable kind, and likely to prove most harmful to the citizens of his country. To put it crudely, Ben Bernanke is betraying his oath of office in a bid to redistribute wealth from the prudent and productive to the profligate and unproductive members of society.
Who are the prudent citizens that I have in mind? They comprise the many hard-working families who scrimp and save, often from limited budgets, to set aside retirement funds, to pay down their mortgages responsibly, and to avoid building up unsustainable credit card debt. These households do not consume beyond their means, do not gamble excessively in the stock market casino, to make quick high-risk returns. Without such households no country can thrive and grow its economy.
They also comprise those businesses who pay circumspect attention to the bottom line, who do not seek out false gold in untenable markets, who do not pay excessive wages to indolent unionized employees, and who do not engage in networks inhabited by those deemed to be less circumspect in their financial dealings. Without such businesses, no country can thrive and grow its economy.
They also comprise governments who stay within their budgets, who do not expand their activities into areas unsuited to their talents, who do not create or tolerate unsustainable debt, and who save to fund their future financial commitments. Without such governments, no country can thrive and grow its economy.
Who are the profligate citizens that I have in mind? They comprise the significant minority of households that do not adhere to budget discipline, who live high on the hog in the good times, without any thought for the bad, who enter into unsustainable mortgage commitments, and fail to pay up on time, who run up unsustainable credit card debt, and then seek taxpayer help to avoid bankruptcy. With too many such citizens, no economy can thrive and grow.
They include businesses that ignore all rules of budgetary prudence, that pay no attention to the bottom line, save for the pockets of their senior management and unionized work forces, that gamble recklessly in suspect markets, and ultimately that run up unsustainable levels of indebtedness. With too many such businesses, no economy can thrive and grow.
They include governments that spend without reference to revenue inflows, that create unsustainable levels of public debt and unsustainable ongoing budget deficits simply to satisfy vote-seeking goals, and that do not put aside savings to meet their future financial commitments. With any such central government, no economy can thrive and grow.
So what is Bernanke’s clear intent in lowering U.S. interest rates across the board through QE2? The policy self-evidently harms the prudent: it reduces the return on savings held conservatively for retirement. It slows the compounding miracle relied upon by those who are saving conservatively to build their pension pots. It reduces the return on business assets held conservatively to deal with bad times. It reduces the returns on the investments of prudent governments who have invested monies conservatively to meet their public employee pension promises. Evidently, Bernanke has it in for this important segment of society.
The policy self-evidently benefits the profligates who do not live within their budgets. The low interest rates bail out some of the debt-ridden households who cannot meet their mortgage payments, who cannot pay their credit bills and who now can borrow at low interest further to accumulate their levels of indebtedness. They bail out the irresponsible risk-takers, most specifically the big banks and investment houses that financed trillions of dollars on residential and commercial real-estate projects that were clearly toxic from the outset. They bail out irresponsible governments – those of Bush and of Obama – that have recklessly allowed deficits to rise and public debt to increase. Bernanke clearly loves the profligates: spend, spend, spend and end up in Ben Bernanke low-interest rate Paradise!