GOP: PUTTING THE TORCH TO EVERYTHING

Economist Paul Krugman called them a part of the "Axis of Depression".

Senator Charles Schumer attacked their "scorched earth policy".

If you haven't already guessed, the "them" and "their" are the Republicans who have adopted a take-no-prisoners strategy to gain full control of the Congress and the White House in 2012. A quick recap.

A part of that strategy has been in place for the last two years with the GOP goal to win back the Congress in the midterm elections three weeks ago. That goal was partially successful with the GOP taking more than 60 seats from the Democrats in the House, far more than enough to make John Boehner the next likely Speaker. And they came close in the Senate, reducing the Democratic majority from 59 seats (including two independents) to 53. The Republican victory was greatly aided by the state of the American economy. A further big boost for the GOP came from the Tea Party movement which exploited the struggling economic picture with heated campaign rhetoric about the need to cut spending, reduce the deficit, halt the liberal/socialist Democratic threat to the Constitution, and stop the intrusion of big government into our lives.

Within Congress this was translated into virtual bloc voting by GOP lawmakers against various Democratic spending and tax proposals aimed at stimulating economic recovery. That partisanship was aimed not only at winning the midterm elections, but also to lay the groundwork for making Obama a one-term President in 2012. To achieve the GOP political goals, they supported nothing that would give Obama and congressional Democrats legislative successes, even if it meant prolonging economic problems. The GOP mantra for economic recovery was and remains cut spending and give more tax breaks for the upper income and business. With Congress' current special session, the "scorched earth policy" has been extended to foreign policy with enough GOP opposition to block ratification of the nuclear weapons reduction treaty with Russia.

That brings us to Krugman's reference to the GOP being part of the "Axis of Depression". The Axis imagery was most recently used by President George W. Bush with his "Axis of Evil" which included Iran, Iraq (before our invasion), and North Korea. Krugman has freshened the term to include a strange mixture of partners--China, Germany, and the GOP. The new Axis formed around the Federal Reserve's program to purchase $600 billion of bonds.

So, not content with the legislative obstructionist strategy, Republicans inside and outside of Congress have come out in opposition to the Fed program. The aim of the Fed is to buy the bonds to help drive down interest rates and thus contribute to economic growth by encouraging consumers to borrow and spend more. It's an effort to stimulate the economy through monetary policy since fiscal stimulus remedies are blocked in Congress by the GOP.

The Fed program also has the effect of increasing money supply and in doing so it has the collateral effect of devaluing the dollar. It is the devaluation effect that has China and Germany in a tizzy. Both have large export surpluses and a devalued dollar is seen as a threat because it may boost American exports and thus make us more competitive in world trade. In short, China and Germany see the Fed purchase as a threat to their economic self-interest. Fair enough, if you don't consider China's currency manipulations to preserve their exports.

But the GOP opposition to the fed is based on a far less credible self-interest argument, the threat of inflation because of the increase in money supply. That argument sounds hollow indeed. Right now we have a very low inflation rate and with our economy likely to limp along for some time, inflation hardly seems to be a near-term problem. In fact, to some economists, the problem is not inflation, but deflation as experienced by Japan in the 1990s. In the absence of a credible case for the threat of inflation, it appears that the real GOP concern is that the Fed purchase may indeed help economic recovery, with political benefits accruing to the Democrats.

So Schumer's "scorched earth" label for GOP strategy, based on Republican obstructionism in Congress, is too narrow in scope. The Republicans have now extended the reach of their legislative opposition/obstructionism to anything that will help the Democrats, including the Fed's monetary policy tools.