Tales from the Trail

Palin talks tough to kids on quantitative easing

November 8, 2010

Now that the midterm elections are history, Sarah Palin is setting her sights and rhetorical skills on the Federal Reserve and its easy money policy.

On Twitter, the former Alaska governor and possible 2012 presidential contender said she would begin a round of discussions at school events to teach children about quantitative easing to prepare them PALIN-RALLY/for the results of the Fed’s plan to boost the sluggish U.S. economy.

“Today:trade speech;tmrw school event 2 start discussing QuantitativeEasing w kids around US so they prepare 4 Feds experiment w their future,” Palin tweeted.

More than a few kids may be baffled by quantitative easing.

In an effort to boost lackluster growth the Fed has been injecting cash into the economy by buying up government securities in what it calls quantitative easing. It announced a fresh round of $600 billion in purchases last week and the action was welcomed by the stock market which moved higher on the news.

But critics, such as Palin and conservative Republican Ron Paul who is likely to head a House monetary policy subcommittee when the new Congress is seated in January, say the Fed’s move will do little to encourage economic growth and will ignite inflation.

Paul, who has written a book called   ”End  the Fed,”  says  the independent central bank is too independent.

Created in 1913 to stabilize a turbulent U.S. banking system, the Fed is no stranger to protests over its policies. It was blamed for turning a recession into the Great Depression by tightening the supply of money. In the late 1970′s the Fed moved to tackle soaring inflation and the rising interest rates unleashed a torrent of criticism from builders, some of whom sent notes to the Fed written on pieces of wood.

By the early 1980′s, interest rates soared to as high as 20 percent and Midwest farmers were protesting high debt servicing costs and low farm incomes and land values.

Photo credit: REUTERS/Scott Audette (Former Alaska governor Sarah Palin speaks during the Republican 2010 Victory Fundraising Rally in Orlando, Florida, October 23, 2010)

Comments
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Someone needs to explain to Sarah Paling that taking a class in high school in home economic doesn’t really prepare one for discussing macroeconomics. Geithner’s plan is brilliant!!! Either way the US wins.
After failing to get accommodations from the Chinese, Geithner is putting the Chinese in a no win situation. He is forcing the hand of every country to compromise or else. After failing to make any real progress, Geithner has adopted a more Israeli style of hardline negotiating! Geithner has masterfully created a situation where he will win on the currency conversion front or inflation or both; regardless of how well or how poorly Geithner does at persuading the G-20 to support his plan.
Currency conversion is not complicated. A strong dollar raises the value of Chinese US holdings, while a weaker dollar decreases the value of those same holdings. The fear of the Chinese walking away from the dollar completely is crazy… they own too many. Overtime the Chinese will decrease their holdings, but this was inevitable with or without Q2. Chinese revenue from sales in the US is on the decline and that decline is not going to be reversed anytime soon. Lower sales in the US means the Chinese simply have few dollars to buy US debt.
LET ME REPEAT… fighting the Federal Reserve and the currency traders would require massive purchases of the same dollars that they fear will go down in value!
Don’t feel sorry for China… China was and still is Fannie Mae’s largest bondholders, so China effectively got almost a half-trillion dollar bailout when the Fed stepped in and rescued Fannie Mae bondholders! China has exploited US policy thru fear and intimidation for far too long!
If the Foreign Central Banks try to fight the US Fed it will require them to buy mountains of dollars. It is not hard to imagine how pissed-off the Russians and Venezuela are about this prospect given their very vocal campaign to reduce their dollar holdings.
It is true that Japan, other Asian economy and developing countries will need to take some protective measures to limit capital inflows, but that seems to be a small price to pay to keep the US from falling into a Japan deflation or worse.
The doomsday scenario that Geithner fears is one where the US employment stumbles further and where the developing nation’s recovery pushes commodity prices to extreme levels. It would be terribly destabilizing!
Screw Germany. The German unemployment rate is half the US because of very shrewd maneuvering and favorable trade agreements. Russia hates anything that helps the US!
Hats off to Geithner!!!

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