Federal spending once again dominated the debate in Washington last week,
as House Republicans and Senate Democrats began work on their ten-year budget
plans. Contrary to claims, neither party's budget reduces spending. While
the Republican plan increases spending a little less than the Democrat plan,
it would still spend $5 trillion in 2023, an almost two trillion dollar increase
over this year's budget.
Of course, these projections of future budgets are meaningless, as a current
Congress cannot bind a future one. Therefore, the projected spending for next
year is the only part of the budget with any significance. So is there a great
gulf between the two parties' budgets for next year? No. For fiscal year 2014,
the Democrat budget proposes spending $3.7 trillion, while the "radical" Republican
budget spends $3.5 trillion!
While the two parties bicker over minor differences in spending, the stock
market, which many in Washington predicted would crash unless the parties
reached a "grand bargain" on taxes and spending, seems unaffected by the various
manufactured budget crises. Unfortunately, the market's indifference to Washington
spending games is based on the fallacy that the deficit does not matter as
long as the Federal Reserve is willing to monetize the federal debt.
Federal Reserve Chairman Ben Bernanke is certainly doing all he can to facilitate
deficit spending. The Federal Reserve's desire to monetize the federal debt
is a main reason for the aggressive program of buying federal debt via the
continuous quantitative easing. Under Chairman Bernanke, the Federal Reserve
is pumping as much as $85 billion a month into the American economy. This
out-of-control monetary policy is largely conducted behind closed doors, yet
it has much more effect on the do day-to-day lives of Americans than Congress's
phony budget debates. The Federal Reserve's polices erode the value of the
dollar, causing prices to rise, which in turn diminishes people's standard
of living. This inflation tax may be the most hideous tax of all because it
is both hidden and regressive.
Of course, the Federal Reserve can only keep this up for so long before doing
serious damage to the economy. The Austrian school of economics teaches that
the Federal Reserve is responsible for the boom-and-bust cycles that plague
modern economies. The Federal Reserve's aggressive money pumping runs the
risk of creating hyperinflation -- especially once banks stop hoarding their
reserves and began flooding the economy with Fed-created fiat currency.
Even though the economic crisis of 2008 proved the Austrians correct, there
are still too many in D.C. and on Wall Street who believe the Keynesian fallacy
that government and the Federal Reserve can spend-and-inflate our way to prosperity.
But, as is the case with the narcotics addict, the longer the Federal Reserve
enables Congress's habit of deficit spending, the more painful will be the
withdrawal when Congress is finally forced to kick the habit.
The role of the Federal Reserve in facilitating deficit spending by the US
-- and even foreign governments -- means it is a mistake to segregate monetary
and fiscal policy. Our nation will never get its fiscal house in order until
we reform monetary policy. The first step is letting the American people know
the real facts about the Federal Reserve's actions.
The debate over the federal budget and even the battle over the Federal Reserve
are ultimately arguments over symptoms rather than the cause. The root of
the fiscal crisis is the belief that the federal government is qualified to
manage the economy, provide for the people's needs, and spread democracy throughout
the world through either by foreign aid or by force of arms. Neither party
in Washington questions the welfare-warfare state.
Until Congress begins debating questions such as whether or not we really
need thousands of military facilities around the world, whether or not we
should shut down the Education Department and return control to local communities
and parents, and whether we should allow young people to completely op-out
of the entitlement programs, the so-called debates in Washington, D.C. will
continue to amount to nothing but sound and fury, signifying nothing.