Fighting Recession Instead of Inflation

Wall Street Journal

Regarding "The Bernanke Reflation" (Review & Outlook, Feb. 29): The Federal Reserve has chosen to fight recession rather than inflation. Even if the Fed opted to fight inflation first, it lacks the weapons to accomplish this. The principal cause of the inflation we are experiencing now is fiscal, not monetary, mismanagement.

With the explosion of our national debt ($3.2 trillion since 2001 and $800 billion projected for 2008), we have been flooding the world with dollars for years. A major portion of this debt was for current consumption. The long-term solution to inflation is to maintain a stable relationship between a recognized value base and the debt and currency of the federal government.

The logical value base for the U. S. is the gross revenue stream of the federal government. And the metric to stabilize this value relationship is to control the growth of the national debt. This is a very difficult task for a Congress that has become addicted to irresponsible spending growth without the political risks of increasing taxes.

Changing these deeply entrenched and politically popular forces will require legislation with teeth. With automatic congressional approval of debt increases, additional legislation that inflicts political pain is required.

Thomas E. Slager
Edwardsburg, Mich.

Whether the Fed reflates or not, we are going to have a recession, because the Fed cannot undo all the malinvestment it caused by printing money for so many years. The only question remaining is whether the recession will become a depression. The longer the Fed prints money in its vain attempt to forestall the inevitable recession, the greater the chance that we will experience a true depression, maybe even a money meltdown on the scale of 1920s Germany.

Patrick Barron
West Chester, Pa.

The Fed can't "reflate," i.e., print money, because it is attempting to target interest rates (the price of money) via the setting of the fed funds rate. As we learned in basic economics, you can't control the price of something and the quantity of something at the same time. Arthur Laffer has stated that the one measure of money that the Fed absolutely controls is the monetary base -- the source of all growth in the monetary aggregates. According to the Federal Reserve Bank of St. Louis publication "U.S. Financial Data," the growth in the monetary base since Aug. 1, 2007 through Feb. 27 has been only 0.2%. For the last 12 months that growth rate was 1.1%. You will have to look elsewhere for the inflation culprit. The Fed's helicopter can't fly anymore.

Thomas E. Nugent
Hilton Head, S.C.