Syndicated columnist Pat Buchanan wonders if the Fed will mistakenly advance the nation's economic depression.
WASHINGTON — In March 1929, the
Harding-Coolidge era came to an end. The eight years had witnessed the greatest
peacetime prosperity of any nation in history: America in the Roaring Twenties.
Early that March, Calvin Coolidge handed the presidency over to Herbert Hoover,
who had just pulled off a third straight Republican landslide.
“I do not choose to run,” said
Coolidge, who could easily have won a second full term. Silent Cal went home.
Hoover, whom he privately derided as “Wonder Boy,” presided over the Crash of
‘29 and the first three years of the Great Depression.
History holds Harding, Coolidge
and Hoover responsible for the Depression, with Treasury Secretary Andrew
Mellon, and Reed Smoot and Willis Hawley of Smoot-Hawley fame, as accessories.
As Voltaire observed, history is a pack of lies agreed upon.
Two men debunked the myth that the
low-tax, high-tariff policy of the 1920s brought on the Depression. The more
famous is Milton Friedman, who proved to the satisfaction of a Nobel Prize
committee that the Depression was a monetary phenomenon. The Fed had opened the
sluices, and the money had swamped the stock market.
When Wall Street crashed, there
came a run on the banks by men who had bought on margin, a depositors’
stampede, a bank collapse, a wipeout of uninsured savings and the loss of a
third of the money supply, lifeblood of the economy. The Fed never gave the
nation the needed transfusions. Hoover and FDR, misdiagnosing the crisis,
raised taxes and wrote up new regulations, which was like putting a body cast
on a patient in shock from the loss of a third of his blood
The Smoot-Hawley myth, repeated by
Sen. John McCain in the Detroit debate, was demolished by Alfred Eckes of Ohio
University, Reagan’s man at the Federal Trade Commission and America’s foremost
authority on the history of trade and tariffs, in his 1995 “Opening America’s
Markets.”
The point of this brief history:
The recent hand-off from Alan Greenspan, the maestro of the Global Economy, to
Fed Chairman Ben Bernanke may turn out to have been a lateral far behind the
line of scrimmage, leaving Bernanke holding the bag for a recession for which
he is no more responsible than was the hapless Hoover.
Last week, the stock market saw 4
percent of its value wiped out. Oil reached nearly $100 a barrel. The dollar
fell to record lows against the Canadian dollar and the euro. The price of gold
was $850 an ounce, signaling inflation and a worldwide lack of confidence in
the Fed’s ability or determination to defend the world’s reserve currency.
The Chinese, with $1.4 trillion in
reserves, perhaps 80 percent in dollar assets, indicated they may dump dollars
and move into euros. Merrill-Lynch took an $8 billion hit. Citibank is
signaling massive losses from its subprime mortgage debt. General Motors
reported an operating loss of $1.6 billion for the quarter and a whopping $39
billion charge that is among the biggest profit hits ever reported
Where does this leave Bernanke? On
the horns of a dilemma.
Exposure of all that subprime debt
going rotten on the books of our biggest banks, the staggering losses being
reported, the inability of homeowners to refinance or borrow any further
against their equity, the credit crunch — all argue for an easy money policy to
get capital back into the economic bloodstream.
Thus the Fed has cut interest
rates from 5.25 percent to 4.5 percent, thus the howls for deeper cuts, thus
the market anticipation of another cut, though the Fed has said no more.
But the Fed is responsible not
only for the national economy. It is responsible for defending the dollar,
which represents the real savings and wealth of the nation. And that dollar has
lost more value in seven years than in any similar period in modern history. A
euro, worth 83 cents the year Bush was elected, has risen in value to $1.47.
As the dollar sinks, exporters may
cheer rising sales, but at home we will soon find that the prices of all those
imported goods from Europe and Asia down at the mall are starting to rise. U.S.
soldiers, diplomats, tourists and businessmen overseas are already feeling the
pain of a falling dollar.
If a recession is generally a sign
the Fed should loosen up, a run on the dollar is a sign the Fed should tighten
by raising interest rates to make dollars and dollar-denominated assets more
attractive.
But the Fed’s raising of interest
rates would push up the rates on mortgages, credit cards and auto loans, and
push millions of marginal folks into bankruptcy and the country into recession,
a disaster for the Republicans.
But, given their free-trade
fanaticism and free-spending ways, that fate would not be undeserved. Say a
prayer for Bernanke. He may have to eat the football that scrambling
quarterback Greenspan tossed to him far behind the line of scrimmage.
Pat Buchanan, a Creators Syndicate columnist,
has been a senior adviser to three presidents.
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Perhaps we should ask for our money back from the Chinese. I hear we could buy it back cheap now that they want to start dumping it on the market. Well actually it was one of their researchers.
We'll were both in bed with each other you know. D@mn it you better stop suing us for all that lead paint on your toys too. This ought to get your attention. Don't worry about the student protestor he graduates in a month and will be working for the Chinese government anyway. But, what do you think about the scare, Mr. Ambassador?
Let's talk!