It Can Only Get Worse

There are two practical political reasons for the Obama administration's QE2 policy. Reason one is to re-float the underwater debtors, the folks with underwater home mortgages. Until they are breathing again, the economy is going to be in trouble. The other reason is to gun the economy for the 2012 elections.

Why not? That's what Richard Nixon did in August 1971 when he took the US off the gold standard. The result was that the M2 money supply that had risen 6.5 percent in 1970 went up at the rate of 13.3 percent in 1971 and 13.0 percent 1972. In 1973, after the elections, M2 was ratcheted back to a 6.6 percent increase and we got the 1973-74 recession.

Here's what I wonder. Are the Obamis cranking the printing presses too early? Back in the 1970s the Nixon administration imposed wage and price controls in 1971. That kept the inflation under control for a while with consumer prices increasing by 4.4 percent in 1971, 3.2 percent in 1972. Then prices exploded by 6.2 percent in 1973 and 11.0 percent in 1974.

The thing to remember is that we don't have wage and price controls to make things look good in the runup to the election. Nor do we have the financial repression of the post-war years in which investors could not escape from dollar investments, and were screwed with interest-rate ceilings on bank deposits. And by going for broke a full two years before the election, the Obamis are risking big-time inflation well before the voters go to the polls.

Here's my judgment. The Democrats have lost the Mandate of Heaven; they have lost the luck o' the Irish that always made things work out for them. President Obama is a Mrs. Gummidge of a president, and everything goes contrairy with him. Things are going to get so screwed up that the 2012 election will make the 2010 election look like a cake-walk.

And here is the worst of it, if you are a Democrat. Democrats are going to be disproportionately hurt in the next few years. Whether it's social spending, green subsidies, public pension defaults, government employee layoffs, it's going to hurt Democrats more. But that strikes at the very heart of the Democratic project, which is patronage, pensions, jobs, and street money for the Democratic supporters. The very best that can happen is that Democratic supporters will lose heart and stay home. More likely is a massive Democratic split, a fight over the remaining spoils.

The worst of the worst, from the Democratic perspective, is Gov. Chris Christie. He is showing that a big fat roly-poly Republican governor can make hay over dissing government employees. He is publicizing the union official that wished for his death. He is publicizing the schools superintendent who is getting his contract renewed before state salary caps kick in. Nobody has ever succeeded in doing this successfully before. And if you can do it in New Jersey you can do it anywhere.

Things are going to get worse, and it's going to be the worst for the little people. Remember? Democrats fight for the people against the powerful.