The 20,000 Dow

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The New York Sun

“Great!” tweets President Trump in respect of the Dow, which closed above 20,000 for the first time in history. Then again, too, his excitement is fair enough. The fact that the Dow has been moving higher since his election has to be, at some hard to quantify level, an optimistic bet on the prospects for his own presidency. We don’t mind saying that we share that optimism, particularly as the signals mount that the president intends to follow through on his pro-growth campaign promises.

For the record, though, the Dow, calculated in the classical measure of value, is nowhere near its high, even if it has been moving in the right direction. That was made recently by a point made by the Web site PricedinGold.com. It maintains, among other things, a chart of the Dow measured in gold. Its all-time low was the equivalent of 1.3 ounces of gold, struck at 1980, just as Americans were preparing to step back a bit from Keynesian principles and elevate Ronald Reagan to the White House.

From there the Dow in gold began a steady and historic climb, peaking in August 1999 at a bit over 49 ounces of gold. PricedInGold.com reckons that on the day Mr. Trump was inaugurated, the Dow was at 18.1 ounces of gold. We understand that the gold value of the Dow is not the world’s greatest indicator. But it serves at least to make the point that Mr. Trump made during the election campaign, which is that it’s been hard to make a mountain out of the molehill of the economy during the Obama years.

Mr. Trump’s phrase was “false economy.” He was talking about an economy that was pumped up by a Federal Reserve ballooning its balance sheet to keep unemployment low and the stock market high. He reckoned the Fed was intent on electing Secretary of State Clinton. She retorted that it was inappropriate for presidential candidates to criticize the Fed, but offered no sense that reform of monetary policy would be a goal of her administration. Since the election, Mr. Trump has yet to enter the fray on this head.

Except to suggest, almost en passant and four days before inauguration, that the dollar was “too strong.” That came in an interview January 16 with the Wall Street Journal. It turns out that the about-to-be-inaugurated president was talking not about the value of the dollar but of its exchange rate with communist Chinese scrip. At the time he spoke, the dollar had been weakening against classical specie for the better part of a month. Just saying. The key question in the stock market and in monetary affairs is: Compared to what?

This is a moment to press the importance of true monetary reform — a point that was marked on the Journal op-ed page January 24 in a piece by John Mueller. He argues precisely that Mr. Trump’s trade real trade problem is not a lack of protectionism but a lack of the right monetary system. “When America had a gold or silver standard, the federal budget ran an annual surplus averaging 0.4% of gross domestic product,” he writes. “When it hasn’t, the average deficit has been 2.7%.”

Who is going to carry this reform for Mr. Trump? He has an early chance to nominate two governors of the Federal Reserve and, before long, to replace the chairman and vice chairman. These choices will be important. Mr. Trump’s nominee as Treasury Secretary, Steve Mnuchin, seems lukewarm or even indifferent to the cause of honest money. Vice President Pence, however, gets it down to the ground. We’ve already suggested Senator Cruz as the next Fed chairman.

A long-shot, no doubt, though the senator of Texas was the first candidate to thrust monetary policy to the center of the campaign. This week, the editor of the Interest Rate Observer, James Grant, asks a craftier suggestion: “Is it so farfetched,” he quips, “to imagine Stephen Bannon as chairman of a Trumpian Federal Reserve?” We’ve met Mr. Bannon only glancingly, but he strikes us as having the kind of crust that will be needed if Mr. Trump is to get a monetary reform to undergird his radical presidency.


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