The Weimar Solution by Patrick J. Buchanan (more by this author) Posted 03/24/2009 ET Updated 03/24/2009 ET
“The best way to destroy the capitalist system is to debauch the currency,” said Lord Keynes.
Ben Bernanke disagrees. A student of the Depression, the Fed chair appears far more fearful of deflation — a vicious cycle of falling prices, debt defaults, home foreclosures and rising unemployment.
Deflation is what America underwent in the 1930s. A Fed-created bubble burst, causing margin calls to go out to stockholders, who ran to their banks that, besieged, collapsed, wiping out a third of our money. As Milton Friedman, who won a Nobel for his thesis that the Federal Reserve caused the Great Depression, told PBS in 2000:
“For every $100 in paper money, in deposits, in cash, in currency, in existence in 1929, by the time you got to 1933 there was only about $65, $66 left. And that extraordinary collapse in the banking system, with about a third of the banks failing … with millions of people having their savings essentially washed out, that decline was utterly unnecessary.
“(T)he Federal Reserve had the power and the knowledge to have stopped that. And there were people at the time who were … urging them to do that. So it was … clearly a mistake of policy that led to the Great Depression.”
Is Bernanke fighting the war of 1929 in 2009? Surely, today, with the explosion in M1, the basic money supply, there is no shortage of dollars out there, even if they are not circulating fast enough.
To end our recession, Bernanke may be running an even greater risk: hyper-inflation. This has destroyed more nations than deflation or even depression.
Recall: It was French military intervention in the Ruhr in 1923, to force payment of war reparations, and Weimar’s decision to let the currency fall and pay the French in cheap marks that led to the wipeout of the German middle class, the discrediting of that democratic republic and the Munich beer-hall putsch of Adolf Hitler.
“The first panacea for a mismanaged nation,” said Ernest Hemingway, “is inflation of the currency; the second is war. Both bring a temporary prosperity; both bring a permanent ruin. But both are the refuge of political and economic opportunists.”
Which brings us to last week’s shocker.
The Fed will buy up $300 billion in long-term Treasury bonds and spend $750 billion more buying sub-prime mortgages to remove them from the balance sheets of ailing big banks, to get the banks lending again.
Bernanke is printing money to buy U.S. bonds.
This new gusher from the Fed, after the $700 billion TARP bailout, comes on top of a Congressional Budget Office estimate that this year’s deficit will be $1.85 trillion, 13.1 percent of gross domestic product, more than twice the share of the U.S. economy of the largest previous postwar deficit.
Concluding the dollar is being abandoned in a frantic Fed effort to stop the recession, markets reacted instantly. The dollar plunge was the steepest since the Plaza Agreement of 1985. Gold shot up to $950 an ounce. Silver had a 12 percent run-up, the sharpest ever. Oil prices surged above $50 a barrel. Commodity markets advanced.
The Fed seems to have confirmed the fears of Premier Wen Jiabao, who said that China is “definitely a little worried” about the value of the U.S. bonds Beijing has purchased with the dollars piled up from her trade surpluses with the United States.
Can one blame the Chinese? They have already been burned on their U.S. investments. And if the defense of the dollar against its ancient enemy inflation is being abandoned, and protecting the dollar is to take a back seat to the Fed’s fight to avoid deflation, than it is indeed time to get out of the dollar and dollar-denominated assets.
For inflation is theft. It make liars and cheats of governments. By eroding the value of a currency, inflation punishes savers and creditors and rewards debtors. And what nation is the biggest debtor of them all? The United States of America.
Insidiously, inflation consumes the value of cash, savings, municipal bonds, corporate bonds, Treasury bonds and T-bills. Friends who lent America money, who bought our debt in good faith, are robbed and made fools of, while speculators who bet against America by shorting the dollar in the currency markets are vastly rewarded.
Given the $3.6 trillion budget Obama plans, the $1.8 trillion in red ink he will run by Oct. 1 and the trillions the Fed is pumping into the economy, gross domestic product should spike, as it did after the far smaller stimulus package of 2008.
We will feel a healthy glow, and folks will begin to sing, “Happy Days Are Here Again.”
Yet, one senses that we are doing again exactly what we have done before in this generation. Rather than endure the pain and accept the sacrifices to cure us of our addiction, we are going back to the heroin. And this time, with Dr. Bernanke handling the needle, we may just overdose. http://www.humanevents.com/article.php?print=yes&id=31188
States consider drug tests for welfare recipients Email this Story
Mar 26, 7:32 AM (ET)
By TOM BREEN CHARLESTON, W.Va. (AP) - Want government assistance? Just say no to drugs.
Lawmakers in at least eight states want recipients of food stamps, unemployment benefits or welfare to submit to random drug testing.
The effort comes as more Americans turn to these safety nets to ride out the recession. Poverty and civil liberties advocates fear the strategy could backfire, discouraging some people from seeking financial aid and making already desperate situations worse.
Those in favor of the drug tests say they are motivated out of a concern for their constituents' health and ability to put themselves on more solid financial footing once the economy rebounds. But proponents concede they also want to send a message: you don't get something for nothing. "Nobody's being forced into these assistance programs," said Craig Blair, a Republican in the West Viginia Legislature who has created a Web site - notwithmytaxdollars.com - that bears a bobble-headed likeness of himself advocating this position. "If so many jobs require random drug tests these days, why not these benefits?"
Blair is proposing the most comprehensive measure in the country, as it would apply to anyone applying for food stamps, unemployment compensation or the federal programs usually known as "welfare": Temporary Assistance for Needy Families and Women, Infants and Children.
Lawmakers in other states are offering similar, but more modest proposals.
On Wednesday, the Kansas House of Representatives approved a measure mandating drug testing for the 14,000 or so people getting cash assistance from the state, which now goes before the state senate. In February, the Oklahoma Senate unanimously passed a measure that would require drug testing as a condition of receiving TANF benefits, and similar bills have been introduced in Missouri and Hawaii. A Florida senator has proposed a bill linking unemployment compensation to drug testing, and a member of Minnesota's House of Representatives has a bill requiring drug tests of people who get public assistance under a state program there. A January attempt in the Arizona Senate to establish such a law failed. In the past, such efforts have been stymied by legal and cost concerns, said Christine Nelson, a program manager with the National Conference of State Legislatures. But states' bigger fiscal crises, and the surging demand for public assistance, could change that.
"It's an example of where you could cut costs at the expense of a segment of society that's least able to defend themselves," said Frank Crabtree, executive director of the West Virginia chapter of the American Civil Liberties Union.
Drug testing is not the only restriction envisioned for people receiving public assistance: a bill in the Tennessee Legislature would cap lottery winnings for recipients at $600.
There seems to be no coordinated move around the country to push these bills, and similar proposals have arisen periodically since federal welfare reform in the 1990s. But the appearance of a cluster of such proposals in the midst of the recession shows lawmakers are newly engaged about who is getting public assistance.
Particularly troubling to some policy analysts is the drive to drug test people collecting unemployment insurance, whose numbers nationwide now exceed 5.4 million, the highest total on records dating back to 1967.
"It doesn't seem like the kind of thing to bring up during a recession," said Ron Haskins, a senior fellow at the Brookings Institution. "People who are unemployed, who have lost their job, that's a sympathetic group. Americans are tuned into that, because they're worried they'll be next."
Indeed, these proposals are coming at a time when more Americans find themselves in need of public assistance.
Although the number of TANF recipients has stayed relatively stable at 3.8 million in the last year, claims for unemployment benefits and food stamps have soared.
In December, more than 31.7 million Americans were receiving food stamp benefits, compared with 27.5 million the year before.
The link between public assistance and drug testing stems from the Congressional overhaul of welfare in the 1990s, which allowed states to implement drug testing as a condition of receiving help.
But a federal court struck down a Michigan law that would have allowed for "random, suspicionless" testing, saying it violated the 4th Amendment's protections against unreasonable search and seizure, said Liz Schott, a senior fellow at the Center on Budget and Policy Priorities.
At least six states - Indiana, Massachusetts, Minnesota, New Jersey, Wisconsin and Virginia - tie eligibility for some public assistance to drug testing for convicted felons or parolees, according to the NCSL.
Nelson said programs that screen welfare applicants by assigning them to case workers for interviews have shown some success without the need for drug tests. These alternative measures offer treatment, but can also threaten future benefits if drug problems persist, she said.
They also cost less than the $400 or so needed for tests that can catch a sufficient range of illegal drugs, and rule out false positive results with a follow-up test, she said.
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