Economic certainty can be a curse 

Markets hate uncertainty. But the reduction of uncertainty can be a mixed blessing, especially if what becomes more certain is likely to bring the emerging recovery to a screeching halt.

Certain: Ben Bernanke will continue as chairman of the Federal Reserve Board. But confirmation came at a price — the further dilution of the Fed’s independence.

The leader of Senate Democrats, Harry Reid, says that in return for his support Bernanke has promised to ease credit further. How that is possible with interest rates already effectively at zero, and printing presses working overtime to turn out dollars, is unclear.

Certain: The era of big government is not over. Any doubts on that score were dispelled when the president announced his risible deficit reduction program. The annual deficit is unsustainably astronomic, and rising. The president proposes to attack this elephant with a pop-gun — a freeze on a tiny portion (17%) of the budget, a portion already wildly inflated — and not until next year.

In the unlikely event that unhappy liberals in Congress accept such a plan, it will cut spending by only $25 billion per year, less than the new spending the president is requesting in order to “create jobs” and pursue his goal of “transforming America.”

More spending on education subsidies, childcare benefits, infrastructure, subsidies for low-income mortgage holders and energy efficiency, funding of basic research in energy production, “a comprehensive energy and climate bill” certain to drive up energy costs.

Throw in a second stimulus and $30 billion for small, regional banks, and it easy to see why Democrats who do not represent far-left constituencies such as House Speaker Nancy Pelosi’s San Francisco, fear they will have difficulty selling themselves as the guardians of the taxpayers’ purse when the mid-term elections roll around in November. And little wonder that the non-partisan Congressional Budget Office says the U.S. budget outlook is “bleak.”

Certain: We are headed down a road that the markets will not long travel. With a recovery underway, unless both the Fed and the government tighten soon, the threat of inflation will scare foreign lenders into demanding higher interest rates.

Certain: Taxes will go up. Call it “fees” in the case of banks, or taxes on “the rich” in the case of income taxes, but up they will go. And swamp the tiny tax benefits the president plans to bestow on small businesses that “hire new workers or raise wages,” the latter not considered by most economists a sensible way to create jobs.

Certain: Bank regulation will be tightened. If the president has is way — and on this one let’s hope he does — banks that take customers’ deposits would be limited to plain vanilla lending, and their risk-taking subsidiaries spun off so that they can not again bring down the banking system. God is in the details. Alas, He has not been known to make His presence felt in the halls of Congress.

All of which means we know that the future of the economy is now heavily dependent on what Congress does with the president’s proposal to expand government intervention. It does seem as if a recovery is underway, but it is a fragile one, and easily aborted by the slightest policy slip.

But at least some uncertainty has been eliminated. Unfortunately, many of the new certainties are scary. We now know that the Fed’s independence has been compromised, and that the president remains on a tax-spend-borrow course.

We might wish those things were not true, but they are. Reduced uncertainty, you see, is not always a blessing.

Examiner columnist Irwin M. Stelzer is a senior fellow and director of the Hudson Institute’s Center for Economic Policy Studies.

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Irwin Stelzer


It is good fun to be associated with an organization that is willing to challenge the position of a "monopoly newspaper."

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