Ben Bernanke has a tart new critic: Sarah Palin.
The conservative gadfly and former vice-presidential candidate unloaded recently on the Federal Reserve's "quantitative easing" plan, saying in a speech that the Fed should "cease and desist." Then, on her Facebook page, Palin called the Fed's plan to buy $600 billion worth of government securities a "dangerous experiment" that amounts to "printing money out of thin air." "Running the printing presses in order to avoid paying off your debts," Palin wrote, "is no way for a great nation to behave."
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Palin's logic isn't exactly airtight, but she's certainly not the only critic of the Fed. Many people—including some Fed insiders—worry that the central bank's efforts to pump money into the economy and artificially boost the markets are short-circuiting the normal functioning of supply and demand. Even Bernanke, the Fed Chairman, admits that efforts to boost the economy today could produce unwelcome side effects in the future, like excessive inflation or new asset bubbles. The irony, however, is that many people who criticize the Fed's actions are directly benefiting from them—Sarah Palin more than most.
I don't know anything about Sarah Palin's personal finances, or how she invests her money. But she claims to be just like millions of other regular folks, with one obvious exception: She's quite wealthy, thanks to millions she earns from book royalties, speeches, and a contract with Fox News. So it seems safe to lump Palin with America's investor class, folks who have a high net worth that's tied more to the financial markets than to Main Street storefronts. Assuming that's true, here's how the Fed's actions have helped enrich Palin:
They've boosted her investment income. It's no accident that the Fed's two rounds of quantitative easing have overlapped almost exactly with huge rallies in the stock market. The Fed announced its first round of easing in March 2009 and ended it about a year later. That coincided with one of the strongest rallies ever, as stocks rose more than 75 percent—which is exactly what the Fed wanted to happen. By buying more than $1 trillion of government and mortgage-backed securities, the Fed forced investors who would have bought those same securities to buy something else instead. That led to a surge in demand for stocks, commodities, and other types of investments. By inflating the stock market, the Fed helped millions of Americans with investment and retirement portfolios regain some of the losses they suffered when the markets crashed in 2008 and early 2009.
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Once the Fed ended QE1, as the first easing program is now known, stocks sank. The summer of 2010 was miserable for investors. Then, at the end of August, Bernanke gave a speech indicating that the Fed was likely to pursue QE2, which it did in early November. Bernanke's speech marked the end of the stock market slide, and since then, the market has risen by another 15 percent or so. It's not clear if the Fed has triggered the entire stock-market run-up from its low point in 2009, but it certainly stoked much of it. So unless Palin has all of her savings stuffed under the mattress, she's probably earned some nice returns thanks to those dangerous experiments the Fed is conducting.
They've made it cheaper for her to borrow. Another main goal of quantitative easing is to force down interest rates, which the Fed has accomplished. Since the first easing program began, for instance, 30-year mortgage rates have fallen by about 0.75 percentage points, to levels that once seemed impossibly low. Palin owns a lakeside home in Wasilla, Alaska, where she's presumably been spending more time since resigning as Alaska's chief executive in 2009 and moving out of the governor's mansion. If she still has a mortgage and she's not underwater on her home, she would have been smart to refinance and save a few bucks. For many homeowners, refinancing has been a windfall, effectively putting found money in their pockets. And if Palin plans to buy a new home in Orange County or Rand Paul's Kentucky, or, say, Iowa, she'll enjoy some of the lowest mortgage rates in decades, courtesy of the Fed.
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They've made it easier for Americans to buy stuff. Like Palin's books. Quantitative easing and other actions by the Fed have had a decisive impact on the economy, helping prevent a full-blown financial panic and ending the recession a lot sooner than it would have wound down on its own. If you believe, as Palin does, that the bank bailouts and $800 billion stimulus plan were a pointless waste of money, then the Fed's moves represent the only government intervention that accomplished anything.
They were hardly a cure-all, and the economy still faces a lot of serious problems. Still, jobs are starting to return, most middle-class families are able to earn a living, and people have a little bit of money to spend on extras after covering food and shelter. That's helped Palin sell close to 3 million copies of Going Rogue, which in turn helped her net another multimillion-dollar advance for her latest book, America By Heart. It will be a long time before we know if Palin turns out to be right, and the Fed ends up doing more harm than good. But here's something we do know: Sarah Palin is the least of the Fed's victims.
Twitter: @rickjnewman
Reader Comments Read all comments (11)
Louis Wheeler of NV 10:08PM December 04, 2010
American capitalist of CA 6:15PM November 21, 2010
Dr. Murphy of CA 2:17AM November 19, 2010