Larry Kudlow

Texas Gov. Rick Perry scorched the political pot Tuesday with a red-hot rhetorical attack on Fed-head Ben Bernanke. When asked about the Fed's reopening the monetary spigots, Perry said, "If this guy prints more money between now and the election, I don't know what y'all would do to him in Iowa, but we would treat him pretty ugly down in Texas."

And that wasn't all. In a more controversial slam, Perry said, "Printing more money to play politics at this particular time in American history is almost treacherous -- or treasonous -- in my opinion." (Italics mine.)

Pretty rough stuff. Very aggressive language. And undoubtedly way too strong. It was poorly received in the financial world.

No, Ben Bernanke is not a traitor. This is a policy dispute; it's not a matter of patriotism. However, and this is an important however, the rest of Perry's statement suggests that his analysis of Fed policy is right on target. In other words, wrong words, right analysis.

The Texas governor, who by some polls is the new Republican presidential front-runner, went on to say: "We've already tried this. All it's going to be doing is devaluing the dollar in your pocket. And we cannot afford that."

Well, to me that is exactly right.

Let's take a quick look at Bernanke's QE2 record of pump priming: The dollar fell 12 percent on foreign exchange markets. The consumer price index jumped more than 5 percent at an annual rate. And the $600 billion cheapening of the greenback led to skyrocketing commodity prices, including oil, gasoline and food. That oil price shock is one of the principal factors behind the 0.8 percent first-half economic stutter. As a result of the jump in inflation linked to QE2, real consumer incomes slumped badly and consumer spending fell substantially.

Before QE2, the economy was growing about 2.5 percent, even though it already was blunted by numerous tax and regulatory obstacles. But the cheap-dollar oil shock came perilously close to pushing us into recession.

So it turns out that Perry -- even with his overly strong language -- is a pretty sharp economic and monetary analyst.

In fact, Perry's analysis actually channels recent Fed dissents by reserve bank presidents Dick Fisher of Dallas, Charles Plosser of Philadelphia and Narayana Kocherlakota of Minneapolis. They object to a two-year extension of the Fed's zero-interest-rate policy and, in so doing, have set down an opposition marker to a potential new shock-and-awe quantitative easing that many fear will be announced Aug. 26 when Bernanke speaks to the Jackson Hole, Wyo., Fed conference.


Larry Kudlow

Lawrence Kudlow is host of CNBC’s “The Kudlow Report,” which airs nightly from 7 p.m. to 8 p.m.
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