The Fed Nominees: Corks on the Water
Our overriding concern is not the nominees themselves, but the failure to consider that the root of the problem in our economy lies with the system of fiat money itself.
The Senate Banking Committee is fixing to send to the full Senate tomorrow five nominees for governors of the Federal Reserve, including the chairman, Jerome Powell. The New York Sun opposes each of them (please see below). Yet our overriding concern is not the nominees themselves, but the failure of the senators to consider that the root of the problem in our economy lies with the system of fiat money itself.
We’ve been beating this drum in one orchestra or another since 1971, when America defaulted on its obligation under Bretton Woods to redeem at a 35th of an ounce of gold dollars presented to it by foreign governments. In the quarter-century of Bretton Woods, unemployment averaged 4.6 percent. Thomas Piketty’s inequality rate lurked at historic lows, as did the personal bankruptcy rate so closely watched by Senator Warren.
No sooner was Bretton Woods abandoned, than those indicators started soaring — and, on average, stayed high. The dollar itself has shed a staggering 98 percent of its value, measured in gold. Today one would have a hard time getting for a dollar more than an 1,800th of an ounce of gold, a circumstance that would have, we have often said, floored the Founders of America — and of the Federal Reserve itself.
A leading founder of the Fed, Congressman Carter Glass, relates in his classic “An Adventure in Constructive Finance” how, in order to win passage of the Federal Reserve Act, the text had to declare that it would not authorize abrogating the gold convertibility of the dollar. Yet today, the idea that gold should be part of our monetary system is seen as heresy, even as inflation has emerged above seven percent.
What galls us is that in 2016 America’s voters chose for President the candidate prepared to make an issue of this. We get that President Trump jawboned the Fed like a regular Nixon, Carter, or LBJ. Yet he nominated for a governorship an economist who, in Judy Shelton, is one of our country’s leading advocates of monetary reform. Her nomination was clearly intended as an effort to begin serious discussion on this head.
It was shocking to see the Senate freeze up over this issue. And to see Chairman Powell publicly denounce Ms. Shelton’s ideas when the president announced his plan to put her up for the Fed, even while he acknowledged that it would be improper for him to take a position on a nominee. We believe that behind the scenes he lobbied against her. We can’t prove that. His own telephone logs raise our suspicion, though.
The logs show that Mr. Powell spoke with six Senators in the hours before the Senate turned her down by one vote. He has never explained those phone calls. Absent an explanation we’re disinclined to see him confirmed to a second term as chairman. Our opposition to Lael Brainard as vice chairman centers on her downplaying — alongside Mr. Powell —the inflation risk over the past year and a general dovishness on monetary policy.
Sarah Bloom Raskin looks eager to take the Fed into the business of climate regulation for which it lacks a mandate. Senator McConnell has warned appointing her would make the Fed “a hyper-political super-legislature.” As for Lisa Cook, the Wall Street Journal this morning issued a devastating report on her hostility to open debate. Philip Jefferson appears to have been chosen more for his left-wing policy bona fides than any commitment to stable prices.
Which brings us back to the Congress. At the end of the day, our beef is not with the Fed. It is not responsible for America’s economic crisis. Neither, for that matter, is President Biden nor Mr. Trump. That responsibility lies with the branch of government to which the Constitution grants 100 percent of the monetary powers — the power to tax, spend, coin money and regulate its value and borrow on the credit of the United States.
That is Congress. It is Congress that plunged us into the age of fiat money in a series of steps in the 1970s, and it is the only institution that can return us back to honest money. We don’t mean that the Fed could never be part of the solution. It forsakes that ambition when it opposes reform and turns its back on our founding principles. The governors-to-be now before the Senate are not going to lead the historic fight. They are corks on the water.