President Obama has one opportunity born of this current economic crisis that he shouldn't waste; a crisis that could not have happened but for the mismanagement of monetary policy by the Fed and it's Chairman, Ben Bernanke. The President can right the fiasco that our modern day dalliance with a floating dollar has been. Now is the time to bring back the dollar's Golden anchor, and give Helicopter Ben his Golden Parachute.
Bernanke, like his predecessor at the FED Alan Greenspan, conducts monetary policy by feel and not according to any predictable standard. A “keep them guessing” approach to monetary policy, with it's gyrations in the FED funds rate and the swings it has produced in the dollars value, has been the cause of much of the economic misery that Americans have suffered over the nearly 40 years since Richard Nixon took the US off the gold standard in 1971. The latest fiasco, the housing market blow up and bust, could not have happened on a gold standard, nor would the future inflation that is already baked in the economic cake be a cause for concern.
The dollar's value hasn't always been an ethereal notion. The dollar was defined by Alexander Hamilton as a specific weight of gold in 1792. One ounce of gold was worth $20.67 from the time he initiated this standard until President Roosevelt's devaluation of the dollar in 1931, which changed its value to $35 dollars per ounce, a measurement which held until Nixon took the US off the gold standard in 1971. This protracted period of stable money, and the low interest rate environment it produced in combination with the other economic freedoms enshrined by the founders in our Constitution, are what enabled the US to become the world's economic Superpower.
With the loss of it's golden definition, the value of the dollar has plummeted. The $35 dollars that would have bought you an ounce of gold or a good men's suit in 1971 won't buy you a decent tie today. Today you would need to exchange nearly 1100 dollars for that same ounce of gold. One is hard pressed to see the benefits of our floating dollar!
Mr. Bernanke, who is proclaimed as the world's greatest student of the Great Depression, has taken all the wrong lessons from it. He, like most other Keynesian economists, believe a deflationary monetary policy was the cause of the Great Depression. As a result, he is pursuing a monetary policy designed to avoid a deflation at all cost. There is one very conspicuous problem with his approach. It is a misdiagnosis of both the cause of the Great Depression and our current recession, neither of which are deflationary contractions.
An email exchange that I've have read between Jude Wanniski and Bernanke from 2004 that has been made public clearly demonstrates Bernanke's complete lack of understanding of the stable money a gold standard produces. It is not feasible that he could lead the country back to the hard money policies that played a key part in making the US a safe haven for investors around the globe, enabling us to outpace the world in economic growth and the jobs that come along with it.
The folks who praise Bernanke for getting us past this financial meltdown miss the point that it was his mismanagement of the dollar that was at the very heart of the problem. By giving him the boot and restoring the dollar's golden link, the President will have removed the man who made this financial debacle possible and restored focus to the Fed whose primary mission is to maintain a stable dollar. Relieved of this impossibly conflicting mission of guarding the Dollar's value and keeping unemployment low, the Fed will once again be back to doing what it is supposed to do. Congress can then get busy providing sound fiscal policy and low tax rates, which in combination with the stable dollar, are the surest path to a robust economic expansion and the jobs it will create for Americans and the rest of the world.
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