Easy Money Inflicts a Massive Penalty on Middle Class

Letters to Editor

The Wall Street Journal, Oct. 2, 2012

Sean Fieler gives Federal Reserve Chairman Ben Bernanke the benefit of the doubt in "Easy Money Is Punishing the Middle Class" (op-ed, Sept. 27), presuming that he doesn't fully recognize the pernicious effect that mild inflation has on American workers over the long run. An equally plausible assumption is that Mr. Bernanke completely understands that middle-class lifestyles are on a downward slope because of easy money policies but he, along with most central bankers in Western democracies, views that outcome as the lesser of all politically palatable evils. Squeezing the middle class with barely perceptible erosion in purchasing power generally doesn't risk civil unrest and political upheaval. And as long as the Fed accommodates trillion-dollar deficits to pay for expanded public assistance, the Obama administration has a better chance of remaining in power, as does Mr. Bernanke. The symbiotic relationship isn't quite as crass as the one forged between Democrats and public-sector unions, but the results may be more devastating to middle-class taxpayers.

When push comes to shove in democracies (because of insatiable voter appetites for unaffordable entitlements), the preferred and least painful course of action is gradual currency debasement resulting in imperceptible declines in living standards; that choice often is made whether political leaders or central bank heads believe in Keynesian nonsense or not. The Federal Reserve now appears to be as politicized as any other government-related entity, announcing QE3 two months before an election and potentially shifting a few crucial percentage points of consumer sentiment in President Obama's direction. One hopes that Mr. Fieler is right that Ben Bernanke just doesn't comprehend the road that he is paving for the middle class. However, there is at least an even chance that he knows the road leads to a less robust economy, but the degradation can be hidden until well after the election.

Glen Reeves

Washington

Mr. Fieler shows how median household income has only increased 12% since 1971, even with the increased number of two-income families.

It is important to point out that the percentage of disposable income has dropped significantly during the same period. According to multiple government statistics, the percentage of disposable income has dropped from 57% in 1971 to 35% in 2011.

One of the largest increases in cost of living and the cause of much of the lowering of disposable income has been in housing. In 1971 with a median income of $9,000, the median home price was $27,600 or roughly three times income. In 2011 the median home price was $224,200 with a median income of $50,000, or 4.48 times income.

The Fed's easy-money policy will continue to drive home prices up when in reality the median home price needs to fall an additional 33% to get us back to a historic ratio of around 3-1.

It is easy to see why the Fed's hands are tied and it continues on this disastrous path of easy money. With the lack of fiscal reform (or even policy) in Washington, the Fed is forced to artificially inflate housing to preserve household wealth. The lowering of the median home price by an additional 33% would be devastating to owners who are already underwater and would be one more shock to the U.S. economy.

Take your pick of easy money or lower housing prices, but either cure might well kill the patient.

Warren Brown

Salem, Ore.

While "QE Infinity" could properly be criticized as weighing on the American worker from the vantage point of fostering higher commodity prices, Mr. Fieler avers that the primary detriment of a bloated Federal Reserve balance sheet is to dampen price signals in the domestic labor market. Does he sincerely believe that many households aren't already aware that their quality of life has been plateauing for over a decade and that deflation would somehow clarify the message to their benefit? The malaise created by global labor-market arbitrage is here to stay, with or without golden fetters on the dollar.

James Adams, CFA

Lancaster, Pa.

A hard currency has two functions. It should serve as both a medium of exchange and a store of value. Policy makers' continuous debasement of the dollar through inflation has destroyed its status as a value store. This forces savers to become speculators, whether in real estate or financial assets, simply to conserve the value of their savings. Policies that compel speculation are antisaver and inherently bubble-inducing and destabilizing. The appropriate rate of policy-induced inflation is zero.

Eric Wigginton