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The New Currency War

12:00 AM, Oct 16, 2010 • By IRWIN M. STELZER
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Before condemning the national leaders for their elevation of national over international interests, consider this. The allegedly expert international institutions, each crying for more power, are not of a single mind. The European Central Bank, reflecting Germany’s fear of inflation and therefore reluctant to print money, is calling for austerity now, in the hope that shrivelling deficits will restore investor confidence, make funds available at reasonable rates to bust countries such as Greece and Ireland, and encourage private sector growth. The IMF, reflecting American fears of deflation, worries that austerity-now will take so much spending out of still-fragile economies that it will trigger the dreaded double-dip -- another recession. German chancellor Angela Merkel is an ECB disciple, at least in this matter, as are the Chinese, while the Obama team -- but not the Republicans who are tipped to take control of one and possibly both houses of Congress next month -- thinks the economists at the IMF have it right.

All of this explains why Larry Lindsey, former Fed governor and chief economic adviser at the George W. Bush White House, is so pessimistic. Lindsey, now leading his eponymous consulting group, crafted the Bush tax cuts that are due to expire at year end. In a talk here in London last week, he expressed fears that political paralysis will produce a long period of, at best, very slow growth. The president wants the tax cuts retained, but not for families earning more than $250,000 per year. The Republicans and some congressional Democrats want the cuts extended for all. They won’t give the president the bill he wants, and the president will veto the all-inclusive tax-cut extension they want. Result: all of the tax cuts expire, and taxes rise to turn slow growth into another recession.

Little wonder that Jamie Dimon, CEO of J.P. Morgan Chase, reports that “An overwhelming majority” of big-company corporate chiefs “believes the potential of devastating economic loss … is at an all-time high.” 

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