Jerome Powell’s Final Grade, So To Speak

With the Fed chairman, Jerome Powell, due to step down on May 15, the press is beginning to discuss his legacy. “He defended the independence of the Fed,” a former vice chairman of the central bank, Alan Blinder, tells NPR. “Integrity is priceless,” crows a CNN headline, quoting Mr. Powell’s own words. Reuters deems his leadership “bold” if “controversial.” Yet none of them address the most important measure of Mr. Powell’s stewardship of the Fed.We speak of the value of the dollar. The one-dollar Federal Reserve Note is likely the most famous marker on the planet. Yet the value of the Federal Reserve Notes measured in the classical monetary metal — gold — has collapsed. Not just sunk but collapsed. On the day Mr. Powell acceded to the chairmanship of the Fed, the dollar was valued at a 1,333th of an ounce of gold. Today a dollar fetches about a 4,600th of a gold ounce, a staggering decline of 70 percent.Barring any significant appreciation by the greenback in terms of gold in the next two weeks, Mr. Powell’s track record as a steward of the dollar’s value looks likely to rank the second-worst in the history of the central bank. He is surpassed only by the chairman nominated by President Nixon, Arthur Burns. When in 1970 Burns was sworn, the dollar was defined in law as a fixed weight of gold and America was under the Bretton Woods agreement.Under Bretton Woods, America undertook to redeem at a 35th of an ounce of gold dollars presented to it by foreign governments. Yet in 1971 Nixon broke America’s pledge. By the time Burns stepped down, in 1978, the dollar’s value had plunged to a 190th of a gold ounce. The greenback’s decline under Burns, amounting to 81.6 percent, signaled the rise of the fiat dollar era, ushered in by years of stagflation.President Reagan and a subsequent Fed chairman, Paul Volcker, tamed inflation and revived growth but failed to restore gold convertibility. As a result, under Volcker’s tenure the dollar’s gold value fell yet further. When he took office in 1979 a dollar was worth about a 283rd of a gold ounce. By 1987, when Volcker left the Fed, a dollar fetched only a 461st of a gold ounce, some 39 percent less than when he started his tenure.Volcker’s successor, Alan Greenspan, an admirer of the gold standard, fared little better. By the time Mr. Greenspan left the chairmanship in 2006, the dollar’s gold value had fallen by some 19 percent, to about a 569th of an ounce. Under the next Fed chairman, Ben Bernanke, the bank began its Quantitative Easing program, ignoring the risk of inflation, and when his term ended in 2014 the dollar’s gold value had fallen another 54.6 percent.The tenure of his successor, Janet Yellen, featured a 5.4 percent drop in the dollar vis-à-vis gold. In all, the dollar’s plunge since the Fed’s creation — some 99.5 percent — is a default that would have flabbergasted the Framers. They had witnessed the hyperinflation induced by Revolutionary-era fiat money. The paper Continental currency was a wartime gamble of which the Constitution’s monetary provisions were drafted to prevent a recurrence. A potential silver lining to the greenback’s slide under Mr. Powell and his recent predecessors could be to position for a measure of success President Trump’s choice to lead the Fed, Kevin Warsh. Mr. Warsh is not talking about gold, but he vows to take inflation more seriously and to scale back the Fed’s balance sheet. It could prove a fine legacy if Mr. Warsh succeeds and turns out to be the first Fed chairman in history under whom the dollar’s gold value rises.

Jerome Powell’s Final Grade, So To Speak

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