The Only Way to Stop Big Government
APP Chairman Sean Fieler has an op-ed in today’s Wall Street Journal detailing the Federal Reserve’s unprecedented intervention to buy government debt over the last few years. He pinpoints the reason Washington has gotten so big and intrusive — because the Fed has enabled Congress to spend money without consequence. The only way to restore limited government is to end this monetary policy. As Fieler puts it, “If today’s Republicans are going to roll back President Obama’s massive expansion of government, they will need the muscle of the bond market free from the Federal Reserve’s manipulation.”
How can we begin to undo the Fed’s unchecked abuse of its power? Senate Republicans on Monday must vote NO on President Obama’s Fed chair nominee Janet Yellen, to affirm that they are against this big government scheme. Fieler also proposes a congressional resolution to limit the amount of government debt the Fed can accumulate. Only then will Washington have a limitation on what it can spend and do, just as the Constitution designed for.
Read the article here:
How to Challenge Yellen—and Big Government
(Note: This article is behind a paywall, so for your convenience we have included the full article below.)
How to Challenge Yellen—and Big Government
Wall Street Journal -- Jan. 2, 2014 7:12 p.m. ET
'I want to come back as the bond market. You can intimidate everybody." That was James Carville, President Clinton's chief political consultant, talking to this newspaper in February 1993.
When President Clinton backed away from HillaryCare and the rest of his big-government agenda, it wasn't just Democratic losses in the 1994 midterm elections that forced his hand. It was the power of the bond market, a point Mr. Carville understood but Republicans seem to have forgotten.
If today's Republicans are going to roll back President Obama's massive expansion of government, they will need the muscle of a bond market free from the Federal Reserve's manipulation. History suggests that only the prospect of higher and increasingly painful financing costs chastens committed big spenders. A liberated, and consequently less docile, bond market would not only restrain Washington's profligacy, it would also free the Republican Party to refocus on the big ideas and positive vision that made it a global force in the 1980s.
No cause unites the Republican Party like the battle for limited government. From Ted Cruz's government shutdown to Paul Ryan's budget compromise with Patty Murray, the political tactics have varied but the goal of limited government has remained the same. The push for limited government even polls well. According to a recent Gallup poll, an overwhelming majority of Republicans, 81%, and a solid majority of Americans, 60%, think the federal government has too much power.
But despite the public's support and Republicans' herculean efforts, the campaign to pare back government has failed both politically and substantively. The federal government continues to grow while Republicans are increasingly derided for their obsession with spending cuts. Far too many Americans now see the GOP as opposing everything and favoring nothing.
The bond market's apparent indifference to the growth of government has made Republicans' sense of urgency about limiting government seem mystifying to many Americans. Trillion-dollar deficits provoked neither a spike in government bond yields nor Wall Street panic. Instead, the bond market actually welcomed Washington's record deficits with a rally, and Wall Street profited. The type of intimidation that Mr. Carville feared was nowhere to be found.
The bond market's reaction, however, is not natural or sustainable. And it is not the inevitable product of the dollar's reserve-currency status, as some would suppose. After all, the dollar was the world's reserve currency during President Clinton's first term, when the U.S. bond market still commanded some respect in Washington. Rather, America's quiescent bond market is a result of Federal Reserve manipulation.
Even with tapering under way and the end of quantitative easing on the horizon, a truly free bond market is not yet in the offing. So long as a threat of the Federal Reserve's bond buying looms, even rising bond yields are unlikely to produce discipline in Washington. Mario Draghi, the head of the European Central Bank, has masterfully demonstrated the power the Fed would have merely waiting in the wings. By standing at the ready to buy government bonds if they decline, Mr. Draghi tamed Europe's bond markets, driving Italian 10-year yields down to 4%, from 7%, as Italian debt-to-GDP, currently at 127%, continued its unsustainable climb.
Monetary policy's dangerous interplay with irresponsible fiscal policy is as old as central banking itself. It was, after all, with good reason that the Federal Reserve Act of 1913 did not permit the Fed to buy government bonds, a restriction that Congress did not clearly lift until 1935. Even then the Fed did not use its power to control the bond market until 1942, and did not abuse it until 2012 by initiating a third round of quantitative easing.
With the economy clearly expanding and the Federal Reserve still unwilling to set the bond market free, the time for Republican action has come. President Obama has made clear his preference for a supine bond market and the big government programs that it will finance. Janet Yellen, his nominee as Fed chairman, has been an outspoken champion of the Fed's bond buying.
Ms. Yellen's vigorous support for quantitative easing gives Republicans a perfect opportunity to oppose the unhealthy alliance between big government and the Federal Reserve. Republican senators should vote against her confirmation, or, better still, make their support for her conditional upon the passage of a resolution capping the growth of the Federal Reserve's already bloated balance sheet. A $4.5 trillion cap and a program to reduce the Fed's balance sheet to $3 trillion by decade's end would ensure continued tapering and an eventual unwinding of the Fed's monetary adventurism.
With the bond market off the sidelines and back on the side of limited government, Republicans could revive their party's Reagan-Kemp legacy: the party of the future, not of austerity. They could then once again advocate new policies, confident that their pro-liberty, pro-growth programs would present alternatives rather than additions to America's already overgrown federal government.
Mr. Fieler, president of Equinox Partners LP, a New York-based hedge fund, is chairman of the American Principles Project, a Washington advocacy group.