The Eclipse of Ben Bernanke

It’s a sign of the times that the chairman of the Federal Reserve Board, Ben Bernanke, testified before the House Financial Services Committee yesterday and the part of the hearing that everyone wanted to know about is what was said by Congressman Ron Paul. He is the chairman of the monetary policy subcommittee that directly oversees the Fed, and he is the one, who, in a poll some months back, was ranked as being neck and neck with President Obama. The reason people are more interested in what he has to say is that it is Dr. Paul who has the deeper understanding of our national predicament.

This was illuminated in in an exchange yesterday in which Dr. Paul asked the chairman of the Fed, which issues the currency notes Americans are required to accept in payment of debts, what was his definition of a dollar. Forgive us, but we’ve been waiting for years to hear that question asked of a Fed chairman the way Dr. Paul put it. And Mr. Bernanke walked right into it. “My definition of the dollar is what it can buy. Consumers don't want to buy gold. They want to buy food and gasoline and clothes and all the other things that are in the consumer basket.”

If the Founders of America had been on the Committee, why, they might well have had the chairman brought up for contempt. They were fairly obsessed with the dangers of paper money, and they had a clear idea of the meaning of money. When, in the Constitution, they delegated to the Congress the power to coin money, they did so in the same sentence in which they also delegated to Congress the power to fix the standard of weights and measures. When, in the Second Congress, they exercised the coinage power, they defined a dollar in plain language — 371 ¼ grains of silver, or the equivalent in gold.

Now it would be unjust to heap upon Mr. Bernanke’s head blame for all that has happened since the greenback was brought in by Lincoln (to pay for, as we have previously noted, a cause — namely, the Union — for which it was worth taking enormous risks). But for Mr. Bernanke to appear before Congress in a week in which the value of the dollar plunged to the lowest point in its history, meaning a week in which the price of an ounce of gold has risen to its highest nominal price in history, and assert that consumers don’t want to buy gold, well, it’s just breath-taking. Marie Antoinette, telephonez votre bureau.

Mr. Bernanke had barely finished his dodge than Lawrence Kudlow, who knows a story when he sees one, got Dr. Paul on the air, broadcast the question about the dollar, and asked the congressman, “Did you hear a Bernanke plan, or is it just going to be ‘destroy the dollar’?” Mr. Bernanke, Dr. Paul told Mr. Kudlow, “believes, like a liberal does, that you have to spend more money, you have to increase demand. That’s all he talks about, not work and savings and investment, increased demand. So they pay us the money whether it’s the Fed or the Congress. So he’s not being exactly honest with us on that, I don’t believe.”

It happens that we’ve been on this beat for a generation and a half, and one thing we can say with confidence is that it’s just not every day that one gets the chairman of the subcommittee that oversees the Federal Reserve stating in public that the Fed chairman has been less than honest. Mr. Kudlow went on to ask the congressman whether oil would be $102 a barrel today “if we had a sound dollar.” Replied the Congressman: “Absolutely not.” He then asked Dr. Paul about Mr. Bernanke’s suggestion that the threat of inflation is temporary.”

“I think he’s dreaming,” Dr. Paul replied. “. . . if I were there and I had to tell the truth, I would be telling what I’m telling now . . . it took years and years for that Bretton Woods agreement to break down. But eventually the market ruled and said, ‘Look, you're abusing it. Gold is not at $35 an ounce.’” Mr. Kudlow then noted that he didn’t recall Mr. Bernanke mentioning that the consumer price index in the past two months was running at a 5.1% annual rate . . . and that’s before the gasoline price increases hit.” Dr. Paul agreed, saying, “if you calculated with the old CPI, it’s actually over 9% . . . You can fool the markets for a while, but even as much complaining as I do about the power of the Federal Reserve and the power of these spendthrifts in Congress, markets are more powerful.”

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No doubt Mr. Bernanke knows that all he has to do is lift the interest rate a bit and value will start returning to the notes he’s issuing. But whose point does that make? And no doubt value could be restored to the dollar if pro-growth, supply-side fiscal and regulatory measures were enacted, a point that was suggested brilliantly in a column in this morning's Wall Street Journal by Karl Rove. But by our lights it is no small thing that the congressman who has watched this issue the most closely in the past 30 years and who is now chairman of the subcommittee that oversees the Fed is prepared to walk out of a hearing at which the chairman of the Fed has been testifying and go on television to question, in essence, whether the chairman who has just testified has been giving the Congress the straight story.