A Gift to Janet Yellen

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The New York Sun

As Ben Bernanke rides off into the sunset let us reflect on the dollar he has left his countrymen. The value of the greenback on the day he acceded to the chairmanship of the Federal Reserve was a 568th of an ounce of gold. The dollar he has left us was worth on his last day at office a 1,251st of an ounce of gold. If one accepts this as the best proxy measure of Mr. Bernanke’s performance, it would make his record the second worst of any Fed chairman since the central bank came into being exactly a century ago.

We fully comprehend that there is no agreement that the value of the dollar is the right way to measure the performance of Mr. Bernanke or any other Fed chairman. We also have been made aware by Professor Krugman that there is no agreement that the value of the greenback is best measured in ounces of gold. But this editorial is appearing The New York Sun, under whose flag an opinion has been sketched on this head going back to before the birth of Mr. Bernanke or, for that matter, the Fed, and it’s our standard.

By this standard Mr. Bernanke’s job performance was the second worst in the history of the central bank. The worst was that of Arthur Burns. It was the haplessness of the pipe-puffing professor to have been in office when, in 1971, President Nixon closed the so-called gold window, under which foreign governments were supposed to be able to redeem their dollars at a 35th of an ounce of gold. By the time he slipped from office, in 1978, the value of the dollar had needled more than 80% to less than a 175th of an ounce of gold.

That was under President Carter. But in one of the reminders that democracy is full of surprises, the weakest of presidents turned around and handed up one of the strongest Fed chairman, Paul Volcker, who, in a demonstration of political character, made it his business to wring consumer price index inflation out of the economy. He was blessed to have a partner in President Reagan, who led the fiscal and regulatory revolution that enabled Mr. Volcker’s rescue of the dollar to succeed.

Rescue in the CPI sense, mind you. The actual and constitutional value of the dollar — that is, its value measured in gold — plunged 38.7% during Mr. Volcker’s reign at the Fed, to less than a 461st of an ounce. It was the fourth worst record of any Fed governor. The third worst was that of Eugene Black, who was chairman during the depths of the Great Depression and on whose watch the value of the dollar nose-dived by more than 40%. The value of the dollar fell but 18.8% under the oft-over-maligned Alan Greenspan. Under all the other Fed chairmen, the value of the dollar plunged 0.0%.

So let us confine this editorial to a simple point, which is that Mr. Bernanke’s last dollar is a gift to his successor, Janet Yellen. She has inherited responsibility for a dollar that is in worse shape than any dollar ever handed to any holder of the chair of the Federal Reserve. It is a situation that would have left the Founders of America humiliated, just as they were by the collapse of the monetary scrip known as the continental dollar, by which they financed the Revolution. She has the chance to become the first Federal Reserve chairman in history under whom the value of the dollar increased.


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