All eyes will be on President Obama tomorrow when he fulfills his constitutional obligation to “give to the Congress Information of the State of the Union, and recommend to their Consideration such Measures as he shall judge necessary and expedient.” All sorts of topics are in the advance headlines, from jobs, to the budget crisis, to gay rights, to the war. All of them are worthy of attention by the President and the Congress.
Yet we haven’t seen in the headlines about the pending presidential palaver even one mention of the topic that, by our lights, rises above all the others. This is the state of the dollar. Particularly in an age of fiat money, where there is no gold or silver backing for our national currency and the only basis of it is the economic good fortune of the nation, well, particularly in such an age, the state of the dollar can be seen as a proxy for the state of the union itself.
If so, the state of the union is at a historic low. We have rehearsed this point so often in these columns that we fear our loyal readers are in danger of becoming afflicted with monetary monotony. We run the risk because of the aphorism of the Robert L. Bartley, now sadly deceased. “It takes 75 editorials to pass a law,” he said. He was speaking of a newspaper that had a daily circulation of 2 million copies. Imagine how many editorials it will take from us more modest sized newspapers.
This topic happens to be getting hotter by the week. The biggest development of late, in our book, was the decision of the Wall Street Journal to issue the op-ed piece by John Taylor warning that the supposedly stimulative monetary policy that Chairman Bernanke and his colleagues have been running is actually a drag on the recovery. That would be like a fire department discovering that the water with which it is hosing down a blaze is flammable.
So what in the world does the President think of monetary policy? Why has he been so all-fired mum on the subject? The question nags at us, particularly in light of his comments during the 2008 campaign. He made them in a meeting with the editors of the Sentinel, a newspaper that is issued at Keene, New Hampshire. We wrote about Mr. Obama’s comments in 2011, when the value of the dollar collapsed to below a 1,500th of an ounce of gold.
The question that had been put to Mr. Obama in 2008 — it was perfectly asked by the Sentinel's editor, Jim Rousmaniere — was about the decline of the dollar. “Is that good or bad?” the candidate was asked. Mr. Obama tried briefly to suggest that there were some benefits to a weak dollar, but he was too smart to stick with that argument — at least while he was running for office. The last guy who tried it was a certain peanut farmer who was trying for a second term.
Then Mr. Obama noted that we hadn’t seen inflation — yet. “It’s not going to last forever,” he said. “So the downside is we’re going to see inflationary pressures as a consequence of this.” Then the candidate asserted that he was “less concerned” about the day to day gyrations of the dollar than “by the underlying economic fundamentals that are causing the dollar to decline,” which he characterized as “that we’re spending more than we produce, and you know we are losing our competitive edge.”
So how’s that working out now that Mr. Obama is beginning his second term? The Federal Reserve has expanded its balance sheet to levels it would once have been hard even to dream about. Our central bank is exposed, as George Melloan wrote in a column in these pages called “The Fed’s Worst Fear,” to the bond market. More than a dozen states are eying making gold and silver coins legal tender. A vast bi-partisan majority of the House wants to audit the Fed, and a new avant garde is talking about the gold standard. Isn’t it past time for the President to say something to the Congress and to the American people about the state of the dollar?