Fall Guys for the Dollar
This article is from the archive of The New York Sun before the launch of its new website in 2022. The Sun has neither altered nor updated such articles but will seek to correct any errors, mis-categorizations or other problems introduced during transfer.
The big news of the day is the resignation of the presidents of two regional Federal Reserve Banks amid a contretemps over their trading for their own accounts. Eric Rosengren, citing his health, is stepping down as president of the Boston Fed. Robert Kaplan is stepping down as head of the Dallas Fed. He’s saying the recent focus on his financial disclosure risks becoming a distraction to the bank’s execution of its “vital work.”
Good luck to them both, we say. We don’t mind confessing that we lack a sense of whether their trading broke any regulations. It’s hard to imagine, though, that whatever they did amounts to more than a hill of beans — a flyspeck — compared to the havoc that the rest of the custodians of our monetary system have wreaked in the past generation. Since the start of 2001, the value of the one-dollar Federal Reserve Note has fallen 84%.
By which we mean that, on the open market, the value of the dollar — the Fed’s most famous marker — has plunged to, at last check, less than a 1,735th of an ounce of gold from the 265th of an ounce of gold that the dollar would fetch on January 20, 2001, when George W. Bush was first sworn as president. The Fed’s brass doesn’t seem alarmed, but we’re in the camp that sees the dollar at current values as anything but normal.
Who is going to resign to take responsibility for that? Not Jerome Powell, it seems. On his watch, the dollar has so far shed 23.8% its value in terms of gold, a constitutional specie (the other is silver). Nor, for that matter, will Janet Yellen, under whom the dollar shed more than 5% of its value. Nor did Ben Bernanke, under whom the greenback lost a staggering 53% of its value. Under Alan Greenspan, it was down 19% in gold.
We understand that the current Federal Reserve is not entirely to blame for this sorry record. One would have to go back to William McChesney Martin, after all, to find a Federal Reserve chairman under whom the dollar fetched a 35th of an ounce of gold throughout his term. Even on his watch, though, the great inflation set in. The real responsibility rests with Congress, to which the Constitution grants the monetary powers.
It was Congress that, in the 1970s, legislated the system of fiat money and ratified the revisions to the International Monetary Fund Treaty that actually prohibited member countries from defining their currencies in terms of gold. The fiat system turns out to invite — or even depend on — vast hedging designed to outfox the vicissitudes of the market and the vast amounts of electronic paper ticket money washing around the globe.
And has led us to the current crisis. It’s a crisis in which Congress, with inflation starting to eat at our currency, is trying to force through trillions of dollars in new taxes and spending while at the same time turning itself inside out over whether to raise the debt limit — or default. Who imagines that the furies driving this crisis will be appeased by two Federal Reserve Bank presidents being cast out into the storm?