Two More Nails In The Dollar’s Coffin—the Republican “Victory”, and the Fed’s QE2

So on Wednesday, not only did the Republicans win control of the House of Representatives, but the Federal Reserve finally took the plunge with Quantitative Easing 2—

—in other words, on the very same day, the U.S. dollar got the ol’ one-two punch—right to the groin: 

  

First the spend-and-cut-taxes Republicans won the Congress—and then, the Fed opened the money spigot with QE2. 

  

Light at the end of the tunnel?

Talk about a bad hair day! The issue is no longer if the dollar will be killed—it’s now a matter of when.

  

Full disclosure: Though I am a fiscal and social conservative, I have always sneered at the Republican Party’s fiscal policies. 

The Republicans have always espoused “smaller government” and “fiscal prudence”—but in the last 40 years, it was the Democrat’s president, Bill Clinton, who actually made government smaller. Shrub, Bush, Ford, Nixon, even the dubiously sainted Ronald Reagan all made government bigger: Bigger in absolute terms, bigger as a percentage of GDP—bigger government has been the real mantra of the Republican Party. 

As for “fiscal prudence”—nominally, the Republican Party is in favor of balanced budgets. But ever since Richard Nixon said, “I am a Keynesian”, there hasn’t been a single Republican president who has managed to balance the budget. Cutting taxes without cutting spending is not a viable definition of “fiscal prudence”—but that’s what Republicans have been selling as viable macro-economic policy for close to 40 years. 

  

The reason is simple. Long ago, the Republicans and the Democrats came to a tacit understanding: The Republicans let the Democrats spend all they want on various Big Government programs, while the Democrats let the Republicans cut all the taxes they want and spend all the money they want on defense. That way, both parties look good with their voters. 

The cost of this Faustian bargain? The Deficit. 

  

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