Paul Ryan’s Question

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 New York Sun

Chairman Bernanke’s testimony before the House Budget Committe this week has set the Web buzzing over the fact that he is, as the Wall Street Journal’s Jon Hilsenrath put it, “puzzled” by the surging gold price. When one gets a Fed chairman averring that he doesn’t “fully understand the movements in the gold price,” it’s certainly news. But the story from the hearing that caught our ear was the emergence of the congressman who asked the headline question, Paul Ryan of Wisconsin, as a point man on what we see as the issue of the hour — fiat money.

This came 31 minutes into C-Span’s video of the hearing, when Mr. Ryan noted that on Tuesday “gold hit an all-time high,” or, as we like to put it, the value of the dollar fell to an all-time low. Mr. Ryan suggested that most people would view the development “as a vote of no confidence against fiat currencies.” What he asked the chairman was “what does that price signal tell you and what is your view of the long-term repercussions with respect to weak currency policies?” He said he supposed one could argue that we don’t have a weak dollar because everyone else is weaker, but asked about the implications for a the “strength and stability of our currency.”

“Well,” Mr. Bernanke replied, “the signal that gold is sending is in some ways very different from what other asset prices are sending. For example, the spread between nominal and inflation index bonds remains quite low, suggesting just 2% inflation over the next 10 years. Other commodity prices have fallen recently quite severely including oil prices and food prices. So gold is out there doing something different from the rest of the commodity group. I don’t fully understand the movements in the gold price, but I do think there’s a great deal of uncertainty and anxiety in financial markets right now and some people believe that holding gold will be a hedge against the fact that they view many other investments as being risky and hard to predict at this point.”

The chairman’s answer strikes us as a classic. One doesn’t go into gold because, as the be-puzzled Mr. Bernanke seems to suggest, one lacks confidence in, say, “other investments,” soybeans, say, or iron ore. One goes into gold because one lacks confidence in the fiat currencies. So Mr. Ryan has opened the way for the next hearing to come right back at Mr. Bernanke with a question in respect of the Founders — Washington, Madison, Jefferson, Hamilton — and their warnings about paper money. It strikes us that Mr. Ryan has touched on the makings of a terrific presidential plank.

It was they, after all, who used the constitutional authority to coin money to pass Coinage Act of 1792, which adopted the dollar as our unit of account and defined it as 416 grains of standard, or 371 ¼ grains of pure, silver and established the constitutionality of a monetary role for gold (and which, not incidentally, prescribed the death penalty for anyone who would knowingly debase that dollar). It is hard to imagine that the collapse of our currency does not reflect the fact that monetary policy is being conducted without so much as a how-do-you-do to this slab of American bedrock. What an encouraging thing to see one of the bright lights in the Republican Party start to broach these questions with the chairman of the bank that is issuing the notes in which the world is losing confidence.


The New York Sun

© 2024 The New York Sun Company, LLC. All rights reserved.

Use of this site constitutes acceptance of our Terms of Use and Privacy Policy. The material on this site is protected by copyright law and may not be reproduced, distributed, transmitted, cached or otherwise used.

The New York Sun

Sign in or  Create a free account

By continuing you agree to our Privacy Policy and Terms of Use