The Road to a Socialist Paradise: Ben Bernanke's Easy Money Policy

NEW YORK ( TheStreet) -- Federal Reserve Chairman Ben Bernanke has convinced financial markets that easy money policies will continue as long as needed. That may be forever, and these policies place U.S. prosperity and sovereignty at grave risk.

The economy is as sick today as it was before the financial crisis and Great Recession. Both were caused by fundamental dysfunctions that remain unfixed.

China, Japan and Germany -- the three largest economies after the U.S. -- pursue cheap currency and protectionist growth strategies. Each amasses trade surpluses with the U.S. to prop up domestic employment.

U.S. consumer dollars that buy their products but do not return home to purchase U.S. exports tax demand and push up unemployment. But for easy money, this would throw the United States into a depression.

During the Bush prosperity, China printed yuan to purchase dollars and U.S. securities. This drove down interest rates on bank loans and mortgages, helping bankers trade in derivatives, inflate housing prices and keep consumers piling up debt until the house of cards collapsed.

Nowadays, the Fed helps Beijing pass out the drugs. It buys $85 billion in Treasury and mortgage-backed securities each month. This finances Wall Street speculators in the housing market and another epidemic of derivatives trading.

Sooner or later the new housing and derivatives bubbles will pop, and the U.S. will be back in the soup -- but it will be a lot hotter this time.

Cheap credit is driving up prices for farm land and propping up businesses that should fail -- securities dealers are hoisting junk on retired investors who can't get any interest on CDs.

The Fed's printing press is propping up an already anemic economy. Since October, GDP growth has barely averaged 1%.

Americans are taking on too much debt to buy cars -- the Detroit Three can credit their financial recovery to replacing cars worn out during the Great Recession with options-laden, expensive replacements. President Obama has pushed down unemployment by persuading young people to earn degrees that provide no gateway to good jobs.

In the end, consumers laboring to pay car loans and mortgages on overpriced homes will cut back spending elsewhere, students and weak businesses will fail on loans, and banks will need another bailout.

The economy will collapse again, and then what will the Fed do? The only thing it has left -- enable more federal stimulus by printing even more money. Hyperinflation and unemployment of more than 15% could easily follow.

America, welcome to the Weimar Republic -- Germany in the 1920s!

It may go better. The economy may just slog along at near-zero growth, Americans may continue to borrow and sell the nation's prime assets to Chinese, Japanese and German investors, allowing the country to become a pitiful recreation of the Middle Kingdom at the time of the Boxer Rebellion.

Meanwhile, the Obama administration uses the IRS and other federal agencies to target political opponents and relies increasingly on executive orders to get around a Congress that smells something terribly rotten -- a president dictating the change he can't win through popular support.

There are better ways. President Obama could stand up to China, Japan and Germany about mercantilism, but he appears to have another agenda. In 2016, voters in economic crisis will be much more receptive to Hillary Clinton than a Republican preaching personal responsibility and limited government.

Democrats will scapegoat Wall Street, and the left's socialist paradise will be at hand

Remember socialism -- the system that makes everyone equally miserable.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
Professor Peter Morici, of the Robert H. Smith School of Business at the University of Maryland, is a recognized expert on economic policy and international economics. Prior to joining the university, he served as director of the Office of Economics at the U.S. International Trade Commission. He is the author of 18 books and monographs and has published widely in leading public policy and business journals, including the Harvard Business Review and Foreign Policy. Morici has lectured and offered executive programs at more than 100 institutions, including Columbia University, the Harvard Business School and Oxford University. His views are frequently featured on CNN, CBS, BBC, FOX, ABC, CNBC, NPR, NPB and national broadcast networks around the world.

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