Is America on a Gold Standard?

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The New York Sun

Has America been secretly on the gold standard? We ask because as Janet Yellen nears the end of her term as chairman of the Federal Reserve, the value of a one-dollar Federal Reserve note is at 1,269th of an ounce of gold — essentially identical to the 1,262nd of an ounce of gold at which it was valued on the day she acceded to the Fed chairmanship. Is that just a coincidence?

That is the question as President Trump wrestles with whether to nominate Mrs. Yellen to a second term or bring in someone else to chair our central bank. Federal Reserve scrip has roller-coastered somewhat during Mrs. Yellen’s term. It’s plunged below a 1,300th of an ounce of gold and clacked up to close to a thousandth of an ounce of gold. Generally, though, it has stayed within that band.

What a contrast to the drama under Chairman Bernanke. When he acceded to the helm of the Fed, the value of the scrip it calls a dollar was a 568th of an ounce. He soon ran down its value to a 1,900th of an ounce of gold. It recovered somewhat. Yet he bequeathed to his successor scrip that had lost close to 55% of its value. It stands as the second worst record of any Fed chairman.

Mr. Bernanke, of course, would mock the idea that the value of Federal Reserve note — meaning the gold it will fetch — is a measure of his performance. He doesn’t give a fig for what Alexander Hamilton and the Founding Fathers thought. Mrs. Yellen herself, in testimony before Congress, also mocked the idea of a gold standard — or any rule, even one set by the Fed itself.

A voluntary, but transparent, rule set by the Fed itself is what has been proposed by Professor John Taylor, another contender for Mrs. Yellen’s job. All the greater the irony of her record — and the fact that the economic progress recorded under President Obama, meager though it may have been, began once the dollar had hit the band in which it more or less stabilized during Mrs. Yellen’s term.

It is disappointing that this issue has failed to surface during the run up to President Trump’s decision in respect of the next Fed chairman (not to mention appointments to the other governorships open at the central bank). The point is well-marked in Lawrence Kudlow’s latest column. “We don’t really know what dollar policies the Fed candidates favor,” he notes, in a devastating point.

Mrs. Yellen, he adds, “hardly ever mentions the dollar. Nor does Jay Powell, at least not in his few public speeches.” Nor has there been any discussion of the basis on which President Trump is going to make his decision of whether to opt for Governor Powell, a tweedledum to Mrs. Yellen’s tweedledee, or Professor Taylor, who would represent a step in the direction of reform. Or someone else.

The situation couldn’t be more ironical. Chairman Yellen reminds us — and not for the first time — of Lucy and the football. Mrs. Yellen has managed to stabilize the dollar within a broad but perceptible band against the true measure of value, gold. Yet she resists admitting gold, or any rule, into the management of what passes for our money. Wouldn’t it be something were she passed over for a second term only for Congress to discover she’d been eyeing the price of gold all along?

The New York Sun

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