Magazine article The American Conservative

Free Falling

Magazine article The American Conservative

Free Falling

Article excerpt

Last time President Bush's delusions were permitted to dictate policy, we set out to democratize the Middle East at gunpoint. Now he's turned to fiscal matters and is convinced that we can stimulate, drill, or perhaps just smile our way out of a thicket of downturned arrows. From the White House podium, he scolded the press corps for "yelling 'recession this, recession that'--as if you're economists. I'm an optimist, and I believe there's a lot of positive things for our economy."

His cheer might have been more contagious had the Dow not been shedding points as he spoke. Or if the dollar hadn't just logged a new low. Or if the morning's headlines hadn't reported the highest rate of inflation in 27 years. Or if the price of oil weren't surging toward $150 a barrel, if anxious depositors weren't lining up outside banks, and if mortgage giants Freddie Mac and Fannie Mae weren't on life support. Fed Chairman Ben Bernanke, demonstrating his gift for understatement, pronounced "significant difficulties."

They won't be fixed by a bailout bill or a rebate check. Mr. Bernanke is boxed: if the government expands its liabilities--shoring up Fannie and Freddie could mean a doubling of the public debt--the value of the dollar will crater and inflation will soar. The alternative is a severe correction and major dislocations, something no politician wants on his watch. …

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