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Perry’s Red-Hot Bernanke Slam

A Commentary By Lawrence Kudlow

Wednesday, August 17, 2011

Gov. Rick Perry scorched the political pot on Tuesday with a red-hot rhetorical attack on Fed-head Ben Bernanke. When asked about the Fed reopening the monetary spigots, Perry said, “If this guy prints more money between now and the election, I don’t know what y’all would do to him in Iowa, but we -- we would treat him pretty ugly down in Texas.”

And that wasn’t all. In a more controversial slam, Perry said, “Printing more money to play politics at this particular time in American history is almost treacherous -- or treasonous -- in my opinion .”

Pretty rough stuff. Very aggressive language. And undoubtedly way too strong. It was poorly received in the financial world.

No, Ben Bernanke is not a traitor. This is a policy dispute; it’s not a matter of patriotism. However, and this is an important however, the rest of Perry’s statement suggests that his analysis of Fed policy is right on target. In other words, wrong words, right analysis.

The Texas governor, who by some polls is the new Republican presidential frontrunner, went on to say, “We’ve already tried this. All it’s going to be doing is devaluing the dollar in your pocket. And we cannot afford that.”

Well, to me that is exactly right.

Let’s take a quick look at Bernanke’s QE2 record of pump-priming: The dollar fell 12 percent on foreign-exchange markets. The consumer price index jumped over 5 percent at an annual rate. And the $600 billion cheapening of the greenback led to skyrocketing commodity prices, including oil, gasoline, and food. That oil-price shock is one of the principal factors behind the 0.8 percent first-half economic stutter. As a result of the jump in inflation linked to QE2, real consumer incomes slumped badly and consumer spending fell substantially.

Before QE2 the economy was growing about 2.5 percent, even though it was already blunted by numerous tax and regulatory obstacles. But the cheap-dollar oil shock came perilously close to pushing us into recession.

So it turns out that Governor Perry -- even with his overly strong language -- is a pretty sharp economic and monetary analyst.

In fact, Perry’s analysis actually channels recent Fed dissents by reserve-bank president’s Dick Fisher of Dallas, Charles Plosser of Philadelphia, and Narayana Kocherlakota of Minneapolis. They object to a two-year extension of the Fed’s zero-interest-rate policy, and in so doing have set down an opposition marker to a potential new shock-and-awe quantitative easing that many fear will be announced on August 26 when Bernanke speaks to the Jackson Hole Fed conference.

What makes Governor Perry’s position even more interesting is his disagreement with former governor Mitt Romney. When I interviewed Mr. Romney this past April, he essentially defended Ben Bernanke and dollar depreciation. “Well, you know, I think Ben Bernanke is a student of monetary policy,” Romney said. “He’s doing as good a job as he thinks he can do in the Federal Reserve.”

Meanwhile, in Tea Party circles on the campaign trail, Mr. Bernanke is a much disliked figure. Rightly or wrongly he is blamed for bailing out Wall Street. Also, many view Bernanke’s massive money-creation, along with President Obama’s massive federal-stimulus spending, as another failed big-government attempt to revive the economy.

Tea partiers and many others fervently believe in lower spending, reduced tax burdens, and a regulatory rollback to strengthen small businesses and the private economy. They’re against Uncle Sam just throwing money at problems.

So in this sense Governor Perry’s red-hot riposte at Bernanke may be shrewd politics, as well as a much needed defense of stable money.

The former Air Force captain piloted C-130 missions in Central and South America, North Africa, and all over Europe. He’s a fierce devotee of American exceptionalism and greatness. My hunch is, just like Ronald Reagan, Governor Perry views a collapsing-dollar threat as more evidence of American decline. And he is very much opposed to any of that.

Larry Kudlow, National Review Online's Economics Editor, is host of CNBC's "The Kudlow Report" and author of the daily web blog Kudlow's Money Politic$.

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