By Greg Hunter’s USAWatchdog.com
The second round of quantitative easing (QE2) is scheduled to end June 30, and already there are calls for more financial stimulus to keep the economy from falling off a cliff. The latest call came from Larry Summers, former head of the Obama Administration’s financial team. In an Op-Ed piece that ran on Reuters last Sunday, Summers pitched the idea of a $200 billion cut in the payroll tax. The Reuter’s story said, “Fiscal support should be continued and indeed expanded by providing the payroll tax cut to employers as well as employees,” Summers wrote. “Raising the share of the payroll tax cut from 2 percent to 3 percent would be desirable as well.” . . . He also said the economy would benefit from an extra $100 billion in infrastructure spending over the next several years and recommended additional aid to states and cities.”(Click here for the complete Reuters story.) The way I see it, Mr. Summers is proposing another $300 billion be added to the national debt.
Summers is not the only high profile economist that wants to print more money. Nobel Prize winning economist Paul Krugman thinks the U.S. didn’t provide near enough financial stimulus back in 2009 when Congress passed more than $800 billion in new spending. In a recent New York Times Op-Ed piece, Mr. Krugman said, “In fact, in important ways we have already repeated the mistake of 1937. Call it the mistake of 2010: a “pivot” away from jobs to other concerns, whose wrongheadedness has been highlighted by recent economic data. . . . Back when the original 2009 Obama stimulus was enacted, some of us warned that it was both too small and too short-lived. (Click here to read the complete NYT story.) Mr. Krugman implies that the money already spent to keep the economy from plunging (which in essence is more than $12 trillion including all Fed actions) has not really caused any problems. He wrote, “This consensus was fed by scare stories about an imminent loss of market confidence in U.S. debt. Every uptick in interest rates was interpreted as a sign that the “bond vigilantes” were on the attack, and this interpretation was often reported as a fact, not as a dubious hypothesis. . . Well, the bond vigilantes continue to exist only in the deficit hawks’ imagination. Long-term interest rates have fluctuated with optimism or pessimism about the economy; a recent spate of bad news has sent them down to about 3 percent, not far from historic lows.”
Mr. Krugman conveniently leaves out the fact the Federal Reserve has spent more than $600 billion in the past 8 months buying Treasuries that have artificially held rates down. I suspect interest rates would be much higher if quantitative easing (QE 2 or money printing) was not Fed policy. And what about the big increases across the board in food and energy? These are not scare stories but facts that are quite damaging to the economy, especially the unemployed. Still, economists like Krugman claim more money printing will save the day and create jobs. With the 2012 election looming, that will surely be the path taken—inflation be damned.
Economist John Williams at Shadowstats.com thinks that is exactly what Fed Chief Ben Bernanke was signaling last week at the International Monetary Conference in Atlanta. In his remarks, Mr. Bernanke admitted, “Until we see a sustained period of stronger job creation, we cannot consider the recovery to be truly established.” In a recent report, Williams said, “Despite the mixed language in his comments on how well Fed policy has been working, I take the more-negative economic tone as an early warning of an eventual QE3 (third-quarter 2011).”(Click here to visit the Shadowstats.com site.)