It looks like Congress is finally getting worried — as they should be — about “monetary policy.”
Specifically, they appear to be rather concerned as to whether The Fed can “unwind” its “extraordinary measures” without utterly destructive side effects.
The real problem, unfortunately, is that The Fed has enabled Congress to deficit spend without limit and without the market signals that would ordinarily constrain such behavior. Now, with a trillion dollars a year plus worth of deficits, the government has spent the last five years without the pushback of market signals that would otherwise have constrained its actions.
This in turn has added six trillion to the debt of the United States, all of which has done exactly nothing to actually permanently advance the economy, but the market’s warning that this was and would be ineffective was lost because of these intentional distortions.
Now Congress has a problem — The Fed has prevented the market from doing its job, Congress has pretended that there are no consequences to these actions, and what’s worse both parties and the Administration have become drunk on the ability to pull this crap on a repetitive basis.
So now what? Now Congress wants an explanation? Good luck — what you’re likely to get is what you’ve gotten thus far — half-answers and worse, half-truths or outright lies, such as when Bernanke said “The Federal Reserve will not monetize the debt.” while it was doing exactly that.
Does Congress have the balls to stomp on this little man’s neck and put a stop to his acts, knowing that doing do will mean a forced end to deficit spending?
Worse, should the blended interest rate on government debt rise to a mere 5%, a level that is consistent with short-term interest rates not long ago,the interest expense alone would be over $800 billion — or roughly 1/5th of the total US Budget and more than a third of all tax receipts.
How you gonna get out of this box, folks?
This is exactly what I’ve been warning about in this column since 2007.