The Republicans’ Latest Ploy to Keep the Economy Lousy through Election Day

Whatever shred of doubt you may have harbored about the determination of congressional Republicans to keep the economy in the dumps through Election Day should now be gone.

Yesterday, in advance of a key meeting of the Federal Reserve Board’s Open Market Committee to decide what to do about the continuing awful economy and high unemployment, top Republicans wrote a letter to Fed Chief Ben Bernanke.

They stated in no uncertain terms the Fed should take no further action to lower long-term interest rates and juice the economy. “We have serious concerns that further intervention by the Federal Reserve could exacerbate current problems or further harm the U.S. economy.”

They didn’t threaten to “treat him pretty ugly” — as Texas Governor Rick Perry told his supporters last month he’d deal with Bernanke if he “printed more money” between now and the election.

But the threat was there. “It is not clear that the recent round of quantitative easing undertaken by the Federal Reserve has facilitiated economic growth or reduced the unemployment rate.”

Translated: You try this, and we rake you over the coals publicly, and make the Fed into an even bigger scapegoat than we’ve already made it.

Top Republicans believe they can block all or most of Obama’s jobs bill. That leaves only the Fed as the last potential player to boost the economy. So the GOP will do what it can to stop the Fed.

After all, as Republican Senate head Mitch McConnell stated, their “number one” goal is to get Obama out of the White House. And that’s more likely to happen if the economy sucks on Election Day.

To say it’s unusual for a political party to try to influence the Fed is an understatement.

When I was Secretary of Labor in the Clinton Administration, it was considered a serious breach of etiquette — not to say potentially economically disastrous — even to comment publicly about the Fed. Everyone understood how important it is to shield the nation’s central bank from politics.

If global investors suspect the Fed is responding to political pressure of any kind, investors will lose confidence in the independence of the Fed and its monetary policies. Even if the pressure is to tighten the money supply and keep interest rates high, it’s still politics. And once politics intrudes, lenders of all stripes worry that it will continue to intrude in all sorts of ways. Lending to the United States becomes a tad riskier. As a result, lenders charge us more.

The Republican letter puts Bernanke and his colleagues in a bind. If they decide against another round of so-called “quantitative easing” to lower long-term rates and boost the economy, they may look like they’re caving to congressional Republicans. If they decide to go ahead notwithstanding, they’re bucking the Republicans and siding with Democrats. Either way, they’re open to the charge they’re playing politics.

Congressional Republicans evidently don’t care. They want Obama out, whatever the cost. Besides, they’ve never met a government institution they don’t mind trashing.

This post originally appeared at Robert Reich’s Blog and is reproduced with permission.

26 Responses to "The Republicans’ Latest Ploy to Keep the Economy Lousy through Election Day"

  1. Counselor1   September 23, 2011 at 9:54 am

    This is mainly a reference request. I have the impression that maybe impatience of majorities of constituents, even including investors on the roller coaster markets, is moving toward a boiling point. Tikkun magazine just issued a call to recruit DIY progressive candidates to run in primaries against conventional Democrat Obama supporters.

    The Fed, so far as I know, has run out of money supply wrinkles without being able to raise velocity of exchange. To push that, progressives need to get into public consciousness the juxtaposition that while the Fed extended 2 QE's, a Twist and $16.1 trillion loans to the banks, household wealth was destroyed in amount from $10.5 trillion to $13 trillion, while the non-optimally directed 2 stimuli only added to less than $1 trillion. The only way to boost velocity powerfully is spot redintegration of many people who lost housing and jobs by some mechanism that temporarily suspends the age-old practice of keeping currency scarce to get people to work for money, e.g., greenbacks.

    It seems to me one of the possibly most effective ways to maintain stagnation or even provoke a second recession is for Republicans to succeed in getting budget cuts to General Welfare Expenditures (GWE's) provoking genuine uncertainty in civilian consumer businesses.

    So pardon me for intruding on your work to request references, links, if you have any readily available. I recall, advanced on the CBPP website somewhere, the claim that raising the full retirement age on Soc. Sec. is equivalent to a 19% decrease in benefits. It struck me that maybe a good argument could be added to the national conversation by we who seek to protect general welfare expenditures (GWE's) by showing how much these GWE's add effective demand, support for civilian consumer prices by subtraction from average prices, e.g., for rent, food, medicine, of the effective demand placed in these areas by such expenditures. This is done at least in jobs, by implication, for "defense" expenditures for the military industrial complex. Nor is this the same argument as made about jobs, etc. by multipliers for, e.g., SNAP. E.g., What would it do to effective demand and thus the average rent for low-income families if the effective demand added by Social Security was cut 19% all at once. Similar calculations could be done for the effect of Ryan Plan cuts to SS, Medicare, Medicaid, and generally for T-Party proposed cuts to unemployment comp. SNAP, etc. Thanks for your attention.