Irwin Stelzer | Printing Our Way Out of Debt

The fiscal cliff is a diversion, designed by politicians to conceal their inability to come to grips with the fact that they continue to spend too much, and refuse to reform a tax structure that reduces the competitiveness of American companies in world markets. No matter what deal is cut, whether before or after the new year, it will at best nibble at the edges of the trillion-dollar annual deficits that are being piled up.

The real action has shifted from America’s inactive politicians to our hyperactive central bankers, the members of the monetary policy committee, who are making Las Vegas high rollers look like risk-averse wimps. And the highest roller of all is bewhiskered former Princeton economics professor who presides over the Federal Reserve Board’s printing presses. Ben Bernanke, the board’s chairman, has an advantage over his Vegas counterparts. He can’t run out of money because he can always print more.

Bernanke’s “risky bet,” to borrow a characterization from the Wall Street Journal, is that he can safely keep pumping money into the economy until the unemployment rate drops from its current level of 7.7 percent to at least 6.5 percent. Unless, of course, the decline in the unemployment rate is due to a drop in the labor force participation rate, in which case easing will continue. If you think none of this matters because Bernanke will exit stage left in 2014, consider that his likely successor, vice chairman Janet Yellen, says the Fed’s complex mathematical models show that interest rates should remain at a zero well into 2016 and reach only about 1 percent by 2017 if unemployment is to reach acceptable levels.


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