Appeasement and the Dollar

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The New York Sun

The latest explanation for the inflation that has America in its grip seems to be that we’re suffering from an insufficient supply of — wait for it — appeasement. What, one might ask, has appeasement got to do with monetary policy, or vice versa? Well, we’re going to find out when American and Russian diplomats meet this week in Geneva, where they will try to defuse the crisis arising from the impending attack on Ukraine.

That’s what we take from the latest news report in the Wall Street Journal. It reckons that the Biden administration had considered the broadest energy and bank sanctions on the Russians. The sanctions would aim to curb energy exports from Russia or to “expel the country from the dollar-denominated international financial system.” The Journal cites “people familiar with the deliberations.”

Yet such tough measures, the Journal reports, “risk raising energy prices for U.S. consumers already struggling with high inflation.” And risk “hurting European economies that have deeper trade and financial ties to Russia’s,” per “officials and analysts.” So we’re sending to Geneva a delegation headed by an avatar of appeasement, Wendy Sherman, our deputy state secretary, who’s famous for negotiating the Iran nuclear pact.

While the Biden administration prepares to appease the Russians and endanger Ukraine rather than risk high prices on energy, the curtain will go up on Capitol Hill for the confirmation of Jerome Powell for a second term as chairman of the Federal Reserve. That’s the institution that spent recent years worrying that there wasn’t enough inflation only to wake up to discover that inflation was, at 6 percent, far too high.

The Fed itself shares with Congress responsibility for this wave of inflation. In recent years the central bank has embarked on an unprecedented spree of monetary manipulation under the name of Quantitative Easing. Mr. Powell et al have accumulated nearly $9 trillion in assets. That’s double the level of just two years ago and a far cry from the less than $1 trillion the Fed held before the financial troubles of 2008.

The Fed aimed to keep interest rates so low that investors would have no choice but to seek riskier investments with their money. It’s prompted a run-up in asset values and has now begun pushing prices up as well. The Fed is weighing how to wind down its balance sheet without causing an economic crash. Yet suddenly we’re thinking of appeasing President Putin to pirouette from the pickle into which Mr. Powell precipitated us.

All this strikes us as unconnected to economic principle. Inflation is a monetary phenomenon. It’s the result of our system of fiat money. Let no one blame inflation on the military situation in Europe. If the toughest economic sanctions on Russia would put pressure on energy prices, the right move is to produce more energy, including here at home. It’s not to produce more appeasement.

The New York Sun

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