QE may soon become a lot more interesting than most people expect. Thanks to public sector union-busting Republicans, Washington's "Build America Bonds" program -- a critical subsidy for basket-case states such as California and New Jersey -- is expiring imminently and, as far as anyone can tell, will not be renewed. Some experts think that the Fed will need to step in to prevent a full-on state- and municipal-bond market collapse, and the widespread misery and social chaos that would ensue. However, Republicans might have some issues with that.
Please keep in mind that this is an existential matter for the GOP. Its members have been itching to stick it to the bureaucrats and teachers' unions since forever. What better way to wipe out these Democrat fundraising machines than to stop bailing them out? If the Fed commences large-scale state- and municipal-bond purchases, it will be directly challenging the long-term viability and success of the Republican party. We have never seen monetary policy (if it can be called that) get so political. Could Bernanke take the heat?
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