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Ralph Benko: Why the GOP still could lose in 2010

February 3, 2010

By: Ralph Benko

OpEd Contributor

There is something disheartening about seeing a team pop the champagne corks and go on a victory orgy … at Half Time after going up by three.

The GOP is spritzing the bubbly and counting its anticipated Congressional gains.  They are as oblivious to the anvil hurtling downward directly towards their heads as any Looney Tunes character.

Well, it’s still “the economy, stupid.”  Commerce just reported 5.7% GDP growth in the fourth quarter of ’09.  We’re not going to get a double dip recession.  Employment gains, a lagging indicator, will soon become very visible.

The Democrats have laid down a narrative, ill-founded but charmingly expressed, to claim credit for the job growth.  And the GOP, in the true enough (but incomplete, missing the effect of monetary stimulus) fact that the stimulus bill is actually a retardant, will be caught like a deer in the headlights.  We have no credible, much less plausible, counter-narrative, much less program.  Pity, because there is a deeply appealing one.

What we are seeing is the Bernanke Bubble.

Supply-side economist John Mueller (formerly Jack Kemp’s chief economist), has been arguing for over a year that, due to Bernanke’s flooding the monetary base, America would see sharp growth beginning in the second half of 2009 — growth as sharp as the downturn that preceded it.

Supply-side economist David Ranson told The Wall Street Journal recently that “the fourth-quarter GDP growth rate of 5.7% (annual) announced by the Commerce Department last Friday should be a ray of sunshine. But even before the numbers came out, as observers perceived a year-end surge, many panned it either as a statistical anomaly or an unsustainable blip.

We are witnessing the natural resilience of a free-market economy; a strong rebound is normal at this stage in the business cycle.”

But then what?  Well, the Bernanke Bubble means robust growth in 2010 — but inflation in 2011 and, given Uncle Ben’s aggression in flooding the zone, a severe recession in 2012.  Because of the structural lags between monetary growth, economic growth, and inflation, it’s all already “baked,” as Mueller likes to say, “in the cake.”

This does, however, present a larger problem for the GOP.  It lacks a compelling Supply Side narrative. And even if the Republican leadership strategy — letting the Democrats commit mass suicide — works, which it well may not, it doesn’t lay the predicate for a fundamental realignment or restoration of America’s vitality.

Luckily for the GOP, there’s an undeveloped but surprisingly broad sentiment for the one major unrealized plank of the Reagan-Kemp agenda: Restoring gold convertibility for the dollar.  This is directly pertinent to permanently ending Bernanke Bubbles — directly relevant to anchoring a narrative and a program.

If rather than wishing away the recovery, or whining (albeit correctly) that it is in no way attributable to the stimulus, the GOP has a golden opportunity here.

The American people resonate to the fact that under a regime of gold convertibility 30 year fixed mortgages can be had for 3%, corporations can borrow (and thus create jobs) at 2%, and the federal government itself can borrow, long term, at 1%, thereby reducing its own interest payments from the projected $700 billion a year (up from $200 billion).

Will this happen?  On the one hand, gold convertibility will work, is a Reagan ideal, and the voters, including moderates, resonate to it.  On the other hand, it is held in contempt by the political elites whose good opinion elected officials crave.  So, it’s a coin toss, but when they notice the falling anvil… it could happen.

But until then, team.  Unseemly for you to be dousing each other with champagne … at half-time.

Ralph Benko, a principal of Capital City Partners, of Washington DC, is the author of The Websters’ Dictionary: How to Use the Web to Transform the World, the eBook of which may be downloaded without charge from  The U.S. Treasury Department called upon him to testify on the constitutional history of monetary policy before its Gold Commission in 1981.


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