Debt Ceiling: Republicans Will Have to Save America From Crushing Inflation
There’s fight a brewing, and this time expect the Republicans to step up.
In March, President Obama will seek congressional approval to raise the debt ceiling. Getting this is supposed to be a routine matter, but not when the deficit is going to exceed $900 billion for the fifth year in a row and our debt-to-GDP ratio is soaring.
Republicans have the opportunity to stand on principle and reenergize. Any increase in the debt ceiling needs to be matched by a corresponding cut in spending, dollar for dollar — at the very least. In the recent fiscal cliff standoff, the GOP gave everything and got almost nothing. This gives the party the high ground to now oppose policies that have already triggered inflation (contrary to what the official statistics say) and that in the long run can only bankrupt the country. If the GOP stands for anything, now is the time to show it.
Been in a supermarket recently? Whether it’s Whole Foods or Kroger, you know the price of food items like beef, dairy products, and eggs has gone way up. If you think that’s all because of a drought, listen to Ricky Volpe, research economist at the Department of Agriculture in Washington: "Food price inflation is on the rise, not entirely due to drought." Others have made similar points.
Had to fill up your gas tank at any point in the past week? The price of a gallon of gas has more than doubled since Obama took office. It’s enough to make those of us who like to drive an F-150 consider a Prius. Or a bike. If you think Obama has nothing to do with higher gasoline prices, talk to oil and gas experts who have had to deal with the onerous regulations put in place since 2008. It’s made extracting energy much, much more expensive.
The official statistics – according to which average inflation is 1.8% – don’t reflect any of this because it’s no secret the CPI is fatally flawed and underreports inflation when the economy is not doing well (a matter of intra-vs. inter-commodity-basket comparison). Using measurement standards of measurement in place when Paul Volcker was chairman of the Federal Reserve, the real rate of inflation is probably in 10% territory. But that’s only saying what anyone who lives in the real world and has to think about things like food and energy already knows: inflation is up since Obama took office. And there is no reprieve in sight.
How could it be otherwise, when Obama has directed the Fed to pump into the economy trillions of dollars since day one? The sophisticated term for this is “quantitative easing,” which means buying assets from banks or other institutions in order to release money into the economy. But where does the government get the money to buy the assets? QE1 was almost $1.5 trillion, QE2 was $600 billion, and QE3 will be $40 billion per month until unemployment falls to acceptable levels. This was not revenue that was raised through tax increases. It was printed – at the president’s behest.
If you think the dollar is doing OK, it’s only because other currencies like the euro are doing even worse. Russia and China are already looking to replace their dependence on the dollar with an alternative currency like the yuan. Abroad, the fundamental weakness of the president’s monetary policy is plain for all to see.
But we should “trust the experts” – no doubt we’ll hear the administration refrain. Moral hang-ups about borrowing are no more than superstition – it’s what the adults know and understand, we’ll surely be told. But value-neutral expertise, an Enlightenment dream shared from the beginning by thinkers as diverse as Bentham, Marx, and Pareto, has known its own share of historical pitfalls. The policy makers responsible for the hyperinflation of the Weimar Republic certainly thought they had expertise on their side. Only a headcase would dare suggest that President Obama is looking to trigger hyperinflation. But if it’s what his policies lead to, 20 or 25 years down the road, our political freedoms may find the weight too much to bear. And Republicans will regret that they did not stand up for spending restraint and core principles that are needed now more than ever.