Good Monetary Policy Is Too Serious a Matter to Be Left to the Fed

Photo credit: Kurtis Garbutt via Flickr (CC BY 2.0)

US News and World Report‘s Andrew Soergel reports that “With White House in Sight, Trump, Clinton Plan Fed Renovations: No matter who wins the election, times are likely changing at America’s central bank.”

“The Fed” really is a synecdoche for monetary policy. Monetary policy used to be, off and on, a significant factor of presidential campaigns. In this election cycle, the monetary policy issue has only arisen occasionally and has not become a major issue of contention.

Pity. It really deserves to be front and center.

What is widely regarded as the most striking speech in presidential campaign history was William Jennings Bryan’s 1896 convention speech concluding:

If they dare to come out in the open field and defend the gold standard as a good thing, we shall fight them to the uttermost, having behind us the producing masses of the nation and the world. Having behind us the commercial interests and the laboring interests and all the toiling masses, we shall answer their demands for a gold standard by saying to them, you shall not press down upon the brow of labor this crown of thorns. You shall not crucify mankind upon a cross of gold.

Read the full speech here. It electrified the Democratic convention and propelled the young Bryan to the 1896 Democratic presidential nomination and two more. He lost all three times — including in 1896.

As economic historian Brian Domitrovic observed, at Forbes.com:

In 1896, Bryan opposed the gold standard because it had coincided with the 1-2% per year deflation that the country had been experiencing since the 1870s.

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Will President Trump or Clinton Evade What Sunk the Ford, Carter, Bush and Obama Economy?

Whoever wins the presidency there is a lurking issue, the most underappreciated issue in politics.  Getting it wrong destroyed the economy (and contributed to ending the presidencies) of Ford and Carter and tarnished the records of George W. Bush and Barack Obama. Reagan and Clinton got it right and went on to handsome re-election.

The political and economic elites are curiously blind to it. An iconic cartoon by Benita Epstein (view it at benitaepstein.com) shows a myopic middle-aged man gazing into a refrigerator full of nothing but butter. It’s captioned “Hon, where’s the butter?” It is the defining image of “Male Refrigerator Blindness.”

Something like — let’s go gender-neutral trendy — Refrigerator Blindness — Obliviousness to the Obvious — is crushing our prosperity. This would be hilarious … except that misery from a lousy economy has driven millions of able-bodied workers into poverty or near poverty.

The death of the American Dream isn’t funny. It’s tragic.

Refrigerator Blindness is not just a comical trope. An inability to see what’s as plain as the nose on your face is a pop culture meme for an actual Thing, one technically called a “negative hallucination.” Per Encyclopedia.com:

The term [negative hallucination] first appeared in “Psychical (or Mental) Treatment” (Freud, 1890), an article relating to hypnosis. Freud wrote that it was possible to suggest to a hypnotized subject that he or she not see a person or thing that would be present to the subject upon awakening; in such cases the object appears to be “thin air” (p.

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The Best Hope for Restoring the American Dream Now Lives in the US Senate

Sen. John Cornyn (R-Texas) (photo credit: Gage Skidmore)

Who will conjure the American Dream back for us?

Politics is part prestidigitation, part reality. A great magician distracts her audience’s attention while producing the payoff. Abracadabra!

Want to see how it’s done? Focus on the hidden hand.

In this case, the United States Senate.

[…]

Money matters.  Bad money “engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.”  Bad money “is noticed by only a few very thoughtful people … gradually overthrows governments, and in a hidden insidious way.”

Lucky for America, we have, in the Congress that “one man in a million” riding to our rescue with a proposed monetary commission  Actually, greatly against the odds, we have several: Rep. Kevin Brady (the monetary commission’s prime sponsor), Rep. Jeb Hensarling (Chair of the committee of jurisdiction, House Financial Services Committee), and Rep. Paul Ryan (Speaker). Together almost unheralded, they got this antidote to what is stifling American job creation passed last November.

The Congressional Research Service summarizes it:

This bill establishes the Centennial Monetary Commission to: examine how U.S. monetary policy since the creation of the Federal Reserve Board in 1913 has affected the performance of the U.S. economy in terms of output, employment, prices, and financial stability over time… and recommend a course for U.S. monetary policy going forward.

This excellent piece of legislation could finally smoke the snake out from the wood pile.

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The Fed Needs Adult Supervision. Time to Pass This Bill.

Photo credit: Kurtis Garbutt via Flickr (CC BY 2.0)

After meeting with progressive lobbyists at the Federal Reserve’s annual Jackson Hole retreat, Fed policymakers declared on Friday that the Fed needed new “tools” to manage the economy, including the ability to buy non-government-backed assets like corporate debt, which would add to the Fed’s historically gargantuan $4.5 trillion balance sheet.

On Sunday, The Wall Street Journal editorial board responded by calling the Fed a “political body” and, for the first time, endorsing the Centennial Monetary Commission Act:

One place for Congress to start would be to pass Rep. Kevin Brady’s idea for a monetary commission to consider the role and structure of the Fed in its second century. Commissions can be political evasions, but in this case such a body with the right members could ignite a debate about the Fed that the monetary priesthood and most of Washington don’t want to have. In a healthy democracy, no body can accumulate power as the Fed has without more accountability.

Ralph Benko, a major advocate for the Centennial Monetary Commission Act and a senior economic advisor to American Principles Project, called The Wall Street Journal’s endorsement a “big deal” in a post yesterday:

This is a big deal. The monetary commission actually has been passed by the House and now is pending in the Senate… This is a high-power, and historic, piece of legislation. This commission is the optimal way to raise the issue of monetary integrity and determine the best method to achieve it.

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The Fed’s Surrealistic “Melting Clocks” Monetary Policy Is the American Dream Killer

Salvador Dali with Babou, the ocelot and cane. 1965. (via Wikimedia Commons)

Houston, we’ve had a problem here.” With those low-key words, command module pilot Jack Swigert of Apollo 13 revealed that, in the later recollection of mission commander James A. Lovell, its “oxygen tank No. 2 blew up, causing No. 1 tank also to fail. We came to the slow conclusion that our normal supply of electricity, light, and water was lost, and we were about 200,000 miles from Earth.” NASA’s heroic and successful effort to return the crew safely home is part of national lore and history.

Washington, we’ve had a problem here,we, the voters, are saying, far more emphatically. The most recent government measure shows that America’s economic growth rate slowed, in the last quarter, to a rate of only 1.1 percent, about one-third of normal American economic growth rates.

This may not sound like a big deal. But it is. It means that job creation, including our ability to get better jobs, raises, bonuses and promotions, has vanished.

It means the death of the American Dream. Poor growth compounded over time is the prime cause of the collapse in people looking for work, the ballooning of the federal deficit, and the weakness in our social insurance programs, Social Security and Medicare.

Breaking News! There’s a solution, and the Wall Street Journal editorial board finally, for the first time, has weighed in to advocate that solution (or at least the process from which a solution can be derived):

One place for Congress to start would be to pass Rep. 

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The Wall Street Journal Takes Notice of the 2016 GOP Platform and the Gold Standard

Kate Davidson in The Wall Street Journal recently took note of a GOP 2016 plank that had been largely overlooked in all the focus on the social issues in the Platform Committee: “GOP Platform Includes Proposal to Study Return to Gold Standard.”

The Republican Party’s 2016 platform calls for a commission to explore the feasibility of effectively returning the U.S. to a gold standard.

The idea has been popular with parts of the GOP for years, but hasn’t gone very far.

The new platform, approved at the party’s convention Monday, echoes similar language in the 2012 GOP platform by calling for a commission to “investigate possible ways to set a fixed value for the dollar.”

[…]

The party platform isn’t binding on the president or other elected GOP officials, but reflects the thinking of many party activists.

Several Republican presidential primary candidates expressed support or interest in the idea during the campaign. Sen. Ted Cruz of Texas reiterated his support for returning to the gold standard in a debate last November. Sen. Rand Paul of Kentucky said the idea should be studied. Neurosurgeon Ben Carson alluded to the idea, saying, “We’ll have to tie our currency to something,” while former Arkansas Gov.  Mike Huckabee advised, “Tie the dollar to something fixed and if it’s not going to be gold, make it the commodity basket.”

To which could, and surely should, be added nominee Donald Trump’s two glowing public statements on the gold standard and the vice presidential nominee Mike Pence forward-leaning statements, when a prominent member of Congress, about the gold standard. Continue Reading

Bloomberg News, Calling Gold “Everyone’s Favorite Standard,” Gives A Pulitzer-Worthy Scoop

Campaign poster for Republican presidential candidate William McKinley, 1900.

A report by Michelle Jamrisko in Bloomberg News on May 17th, headlined “Make America Gold Again: Calls for Everyone’s Favorite Standard Are Back,” suggests that the headline may have outrun its pass coverage. The gold standard is by no means “everyone’s” favorite standard. It has many critics.

And yet, giving due deference to an element of dramatic license, this report makes several very significant points, scooping the rest of the mainstream media.

The first key points are that, in the reported words of Jesse Hurwitz, a U.S. economist at Barclays Capital in New York — who considers the gold standard a bad idea — “The fringe has become the mainstream.” He considers the gold standard “something we’ll increasingly talk about.” This is an astute observation, far more so than Hurwitz’s facile dismissal of the gold standard itself.

Jamrisko points out that both Donald Trump, the presumptive Republican presidential nominee, and Ted Cruz, the runner up, have unflinchingly praised the gold standard:

Ted Cruz, in one of the early candidate debates last year, said the Fed “should get out of the business of trying to juice our economy and simply be focused on sound money and monetary stability, ideally tied to gold.”

[…]

Then there was Donald Trump. “We used to have a very, very solid country because it was based on a gold standard,” he told WMUR television in New Hampshire in March last year. But he said it would be tough to bring it back because “we don’t have the gold.

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Rand Paul Likens Fed to Soviet Politburo After Interest Rate Increase

Sen. Rand Paul (R-KY) (photo credit: Gage Skidmore)

On Wednesday, the Federal Reserve announced that it was raising interest rates for the first time in seven years. Surprisingly, longtime critic of zero interest rates Senator Rand Paul skipped the expected sigh of relief, instead expanding his criticism of the Federal Reserve’s role in setting the value of money:

“Is it a good thing or a bad thing to raise the interest rate?” Paul asked. “Well, I’m kind of agnostic on it. It’s kind of like if you ask me: All right, should the Politburo raise the price of bread or lower the price of bread? I like both prices, but the real question should be: Should the government be involved with setting prices? What amazes me about the Federal Reserve setting interest rates is that almost to a person, conservative economists in our country will say, wage and price controls are a mistake.”

The Soviet references seem a little overboard, but it’s good to hear Senator Paul bring up the important question of whether the federal government should be in charge of setting the price of anything, much less the value of the dollar. Rand Paul has been a big advocate in Congress of reform packages like the Centennial Monetary Commission, which passed the House last month as part of the FORM Act. As 2016 heats up, I’m looking forward to Senator Paul continuing to lead a national discussion on the future of U.S. monetary policy.

Nick Arnold is a researcher for the American Principles Project. Continue Reading

Antiquated Fed Raises Interest Rates for First Time in Nearly a Decade

Photo credit: Kurtis Garbutt via Flickr (CC BY 2.0)

Today, after seven years, the Federal Reserve finally took steps toward ending its failed zero-interest rate policy, announcing in a unanimous decision that it would raise the federal funds rate a quarter of a percent, or 25 basis points, in its first interest rate hike in nearly a decade.

It is absolutely befuddling that the Fed took so long to increase rates a measly 25 basis points. The last time interest rates were above the 0.25 percent threshold, Miley Cyrus was still known to America for her wholesome children’s show Hannah Montana.

The Federal Reserve still needs massive reform. Its current model is antiquated, arbitrarily basing decisions off of past economic indicators, not present or future outlooks. For more than 40 years, they’ve been playing a high stakes guessing game with interest rates. When the Fed guesses wrong, whether too high or too low, it distorts our economy, investments, and opportunities.

We need the Fed to get out of the way and let the free market determine interest rates. An important first step toward reforming the Fed is to pass the Brady-Cornyn Monetary Commission, which would analyze and recommend the best monetary policy for a 21st century economy.

Terry Schilling is the executive director of American Principles in Action. Continue Reading

Cruz Questions Yellen on Fed Policy

Sen. Ted Cruz (R-TX) (photo credit: Gage Skidmore)

Ralph, you noted this first, but this New York Sun editorial is worth a closer look. In a glowing column Friday, the Sun praised Ted Cruz for his astute questioning of Federal Reserve Chair Janet Yellen in last week’s Joint Economic Committee hearing, and in particular for focusing on the effectiveness of having a monetary rule verses current Fed policy:

The key question Mr. Cruz asked is whether Mrs. Yellen agrees with her predecessor Paul Volcker that the absence of a cooperatively managed rules-based monetary system has not been a great success. Mr. Volcker offered that assessment in a speech to the Bretton Woods Committee in May 2014; it was first reported in a Wall Street Journal op-ed piece by the editor of the Sun and, given Mr. Volcker’s stature, was an important moment in the debate over monetary reform.

Mr. Cruz sketched the economic turmoil since we abandoned the Bretton Woods system for fiat money. He also pressed Mrs. Yellen about a view — of Nobel laureate Robert Mundell, among others — that the central bank’s tightening early in 2008 precipitated the crisis that became the Great Recession. Mrs. Yellen seemed startled, even confused, by the question, at least according to some, and in any event dodged Mr. Cruz’s query with classic Fed-speak.

The editorial also praised the effort in Congress to address U.S. monetary policy shortcomings, particularly the FORM Act and its accompanying Centennial Monetary Commission:

That is the bill that was passed last month by the House and is now before the Senate.

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