The collapse of the dollar to less than a 1,200th of an ounce of gold is emerging as one of the astonishing stories of our time. Yet even more astonishing is the lack of focus on that story by the intelligentsia in our press and politics. It is a silence on which these columns have remarked a number of times of late, including on March 14, 2008, right after the value of the greenback toppled below a thousandth of an ounce of gold. At the time we suggested that, once the Democrats had their nominee, it would be up to Senator McCain to confront them with the fact that the Congress they’ve controlled since 2006 has resulted in the dollar falling below a thousandth of an ounce of gold and to warn of its further collapse without the right leadership.
Now the default that has followed has been bi-partisan. It was less than five years ago that we issued, on December 5, 2005, an editorial called “The Bush Dollar.” It charted the collapse of the greenback to barely a 500th of an ounce of gold from the 265th of an ounce of gold that it was worth when President Bush acceded to the office where the buck — or, to use the phrase that our contributing editor Larry Parks likes, the “paper ticket” that passes for a buck — stops. At the time we issued that editorial, Mr. Bush had just named Benjamin Bernanke to chair the board of governors of the Federal Reserve. We noted that the dollar had continued to lose value at what we called an "astonishing rate.”
So on the eve of the election that gave the Democrats the control of Congress, we issued an editorial proposing the dollar be renamed “The Greenspan,” in honor, or dishonor, of the Fed chairman who’d just written a book that gave short shrift to the whole idea of measuring a dollar in gold. When it didn’t happen, we issued, on November 30, 2006, another editorial, “The Pelosi,” focusing on the fact that is was to the Congress that the Founders of America delegated power to coin money and regulate the value of it. Despite the efforts of Congressman Ron Paul to return to the idea of constitutional money, it rapidly became clear that the Congress wasn’t going to do anything more about the dollar under Mrs. Pelosi than it had under Dennis Hastert.
So in 2007 we proposed renaming the dollar “The Bernanke.” It called the pace at which the dollar was falling “scandalous.” It also quoted Congressman Ron Paul as having, in 2006, written, prophetically it looks like: “Economic law dictates reform at some point,” Mr. Paul had written in the fall of 2006. “But should we wait until the dollar is 1/1,000 of an ounce of gold or 1/2,000 of an ounce of gold? The longer we wait, the more people suffer and the more difficult reforms become.” We quoted Dr. Paul as warning that “runaway inflation inevitably leads to political chaos” and declared that the time for action is now.
It happens that after the dollar fell below a thousandth of an ounce of gold, we went into a few months of sharp deflation. One can speculate that this was a panic on the part of the Fed. As reported by American Thinker, Professor Robert Mundell, the famed Nobel Laureate at Columbia, recently gave, at the Heritage Foundation, a speech blaming that sudden deflation of the dollar in mid-2008 for triggering the current crisis. He called it “one of the biggest mistakes in the history of the Fed. ” And we are not so centered on gold that we don’t pay attention to Mr. Mundell’s warning.
But we also know that when supply-side measures such as tax cuts and de-regulation are combined with tight money we can have a strengthening dollar and a booming economy. President Reagan and Chairman Volcker proved it. President Obama, however, has chosen demand-side measures, and the Federal Reserve obliged, precipitating the dollar yet again into a long downward slide. So here we are, well into the second year of his administration with a dollar that will associate Mr. Obama’s name with faltering scrip.
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This is a time when we need a national conversation about the dollar. What is it? What did the Founding Fathers think it was? When they used the word “dollars” twice in the Constitution but did not deem it necessary to provide a definition, what did that tell us? In fact, the historical record is clear. The constitutional dollar was — and is — 416 grains of standard silver, or 371 ¼ grains of pure silver, the same amount of silver as is in a coin known then, and now, as the Spanish Milled Dollar. What were the Founders thinking when they decided to use, in granting to Congress the power to “coin money and regulate its value,” the same sentence in which they also granted Congress the power to fix the weights and measures?
How are we going to get back to a constitutional framework for our national unit of account? And, most ominously, what will happen if we fail to do so? It is too much to hope that this national conversation might be ignited by Mr. Obama himself. The Wall Street Journal editorial page is doing a heroic job among the newspapers, including a piece in tomorrow's paper calling for taking another look at the gold standard, and Larry Kudlow among columnists, his latest being here. We hold out hope that some politician will pick up the issue of the dollar. So far the only one who has gone out on the stump to mark its collapse against gold is Sarah Palin. Come to think of it we’re long overdue for having the face of the greenback engraved with a woman.