Commentary Magazine


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When You Print Tons of Dollars, They Are Worth Less

The New York Times reports:

The dollar was on a roll just a few months ago, bounding higher against foreign currencies as investors sought a safe hiding place for their money amid a global downturn. But now, many are rethinking their decision to buy American.

The dollar skidded to its lowest point in five months this week, battered by creeping fears that Washington’s costly efforts to stimulate the economy are growing harder to finance and may set off an unwelcome bout of inflation. Analysts are increasingly concerned that a rise in prices could hurt consumer spending, deepening the recession.

It is no mystery how this happened. As the Times notes, the Fed “is printing money from thin air, and the government is issuing trillions of dollars in new debt as it tries to spend its way out of the recession with a huge stimulus package, new lending programs, health care overhauls and automotive rescues.” The immediate impact is already seen in higher oil and other commodity prices and higher interest rates. In the longer term economists now worry about the loss of the U.S. AAA bond rating. All this is occurring as unemployment is climbing into double digits.

And so those (Republicans in Congress and even those supposed rubes who were out at Tea Parties on April 15) who warned of stagflation don’t seem so alarmist after all. Remember the “misery index”? If we see the debilitating combination of high unemployment and rising inflation it will be hard to miss the analogy to Jimmy Carter. And given the president’s spending and bailout spree and ”Helicopter Ben’s“ monetary policy, it will be even harder to shift the blame elsewhere. What we are seeing is the predictable result of  Obama’s policies, which most conservatives and libertarians — to their credit — warned against. On this one, not even George W. Bush can be blamed.