Won't Work

Atrios (via Americablog) points to a key observation by Jon Markman on the Bush administration's tactics to delay the coming recession:

So the government is in the process of twisting the arms of Federal Reserve Board members to lower interest rates by as much as 2 percentage points over the next year, including potentially a whopping half-point cut next week. That will allow banks to go back to one of their favorite recession-delaying ploys: encouraging debt-strapped consumers to refinance their loans at lower rates.

If that doesn't work, the government has been making noises about creating something like a Marshall Plan for home foreclosures -- a giant bailout fund similar to one used during previous housing crises. Just for good measure, analyst Bove notes, the administration is engaged in other types of powerful job-creating fiscal stimuli as well, such as ramping up spending on defense, infrastructure and transportation construction. "The administration in power is not going to go into an election year in a recession," he insists.

While Atrios notes that "[the] general independence - and belief in that independence - [of the Fed] is thought to be rather important," I think that's less of the story than the fact that lowering the Fed rates, like invading Iraq to stabilize the Middle East and other fantastic schemes of our beloved Bush administration, won't work.

Bernanke, after all, has already been spotted by gossip columnists throughout New York cavorting with investment bankers and Wall Street honchos, cooing "I'm your bitch" while throwing real cash from his fabled helicopters.

But the last time the Fed cut rates, mortgage rates rose as the market priced in the inevitable inflation that Bernanke's happy printing press would produce. Cutting rates will hasten the foreign exodus from U.S. financial instruments that has already caused the dollar to tank more than 11% against the Euro this year; and as that happens, interest rates will rise. Asian central banks, after all, have greater influence over long term interest rates in the U.S. than the Fed.

Which is to say that it's no surprise that a government that has spent the last seven years ripping out the firewall between partisanship and government at every level -- from oil leases on public lands to data mining on American citizens -- would be twisting the Fed's arm to cut rates. And fairy tales aside, we haven't had a Fed chairman with the independence to stand up to a President's pressure for a political bailout in more than twenty years. The Fed will probably cut rates at the behest of the Administration and Wall Street and the investment banks, but little George Bush had better hustle out quickly after they do to declare "Mission Accomplished." Because the relief that provides will last about one news cycle before the rest of the world rushes to dump more of their American assets, sending interest rates soaring.