In his post-FOMC press conference, Fed Chairman Ben Bernanke recognized his zero-interest rate policy hurts savers. Bernanke made it crystal clear that his intention is to make people spend, practically telling savers to get out there and invest. The Chairman also said QE3 is still on the table, while he disregarded Republican criticism of the Fed as “political rhetoric.”
After unveiling, for the first time, FOMC members’ predictions for when to begin to hike rates and tighten policy, Bernanke took to the microphone to respond to some specific questions regarding the Fed’s latest policy initiatives.
One of the toughest questions had to do with recent Republican hostility toward the Fed and its chairman, and if, in event Mitt Romney, Newt Gingrich, or any other GOP candidate won the election, if he would step down as Fed Chairman. Bernanke immediately dismissed the question, saying “I have a job to do” and adding he wouldn’t get “involved in political rhetoric” or “comment on a hypothetical situation.”
The Chairman was put on the spot with several questions regarding the effectiveness of his policies. Asked about the destruction of savings given ultra-low interest rates, Bernanke admitted he understood savers were getting a real bad deal. Essentially, Bernanke said the anemic recovery necessitated low interest rates to strengthen. Low rates are used to stimulate investment, according to Bernanke, and that “has a cost on savers.”
In other words, Bernanke told people to stop saving and start investing. When the economy is really bad, he explained, returns are going to be low and savers will get meager returns. Keeping your money in supposedly safe Treasury bills and CDs won’t help reactivate the economy, according to the Chairman’s view of the economy, and neither will keeping dollars under a mattress.
One of Newt Gingrich’s rivals just before the South Carolina primary criticized him for his claim of having created millions of jobs, saying “Congressmen taking responsibility or taking credit for helping create jobs is like Al Gore taking credit for the Internet.” This charge of self-aggrandizement didn’t stick to Gingrich (many of whose stands have engaged this columnist’s personal enthusiasm and support). Instead Gingrich stunned the pundits by a double-digit spread victory, close to a 30 point swing from January 9.
There are many reasons for Gingrich’s “swing for the fences.” Not least of which is that his rival was wrong and people know it. Government indeed creates or destroys the economic climate. Sound money (for which the gold standard is, well, the gold standard), low tax rates, reduced government spending, free trade, gentle, sensible regulation, and minimal to modest government welfare programs create a climate in which entrepreneurs and businesses grow … and hire.
We’ve been ten years without sound policies of job creation. Some clearly have forgotten the compelling successes of Presidents Ronald Reagan and Bill Clinton — who established growth policies. Contrast the failures of presidents Lyndon Johnson, Richard Nixon and Jimmy Carter. Reagan’s signature achievements, of course, were stabilizing the dollar and cutting marginal tax rates. These factors created a climate so favorable to enterprise that Americans created 17 million jobs.
Clinton signed a Gingrich-led cut in the capital gains rate, reformed welfare, and produced the North American Free Trade Agreement. Ross Perot predicted that NAFTA would produce the loud sucking of jobs out of America; instead Clinton, building on Reagan’s success, produced a climate in which the private sector created 23 million net jobs.
The record is unambiguous; Gingrich was a player in making all of this happen. No wonder the Club for Growth says “As a historical figure, it is undeniable that Newt Gingrich has played leading roles in some of the most important battles on behalf of economic growth and limited government in the last quarter century.”
The biggest under-reported story of the South Carolina primary is winner Newt Gingrich’s campaign promise to convene a gold commission to “look at the whole concept of how do we get back to hard money.”
The only job of the Fed should be to “maintain the stability of the dollar because we want a dollar to be worth 30 years from now what it is worth now,” said Gingrich, pointing out price stability encourages savings and investment because people know what the dollar will be worth when comes time to spend it.
Monetary reform can be the issue that propels Gingrich above the tawdry attacks on his personal life and questions about his reliability all the way to the Republican nomination, because it puts him ahead of Governor Romney and Senator Santorum on a policy that enjoys a clear plurality of support among Republicans, Democrats, blacks, whites, hispanics and individuals across all income categories.
When the Rasmussen polling firm last October asked 1000 likely voters if they were “favorable or unfavorable about returning to the gold standard,” 44% were favorable versus 28% unfavorable. However, when the respondents were asked: Would you “favor or oppose returning to a Gold Standard if you knew it would reduce the power of bankers and political leaders to steer the economy?” those in favor increased to 57% versus only 19% opposed.
Republican presidential candidates Ron Paul and Newt Gingrich haven’t agreed on much thus far in the Republican primary race, but during Monday night’s debate in Florida they found common ground on some monetary policies.
Although much of the night was dominated by former Massachusetts Governor Mitt Romney’s attacks on Mr. Gingrich, the former House speaker said that he did agree with Mr. Paul’s views on drastically reducing the Federal Reserve System’s role as the central bank in the U.S.
One of Mr. Paul’s key policies that he says he wants to implement if elected president is audit legislation that would give American taxpayers alternatives to “the Fed’s inflated paper money” according to his presidential campaign website. At the debate Monday night Mr. Gingrich complimented the Texas lawmaker on regarding his “end the Fed” policy.
“Congressman Paul is right. There’s an area — I think what he has said about the Federal Reserve and what he has said about the importance of monetary policy,” said Mr. Gingrich Monday.
Mr. Paul essentially wants to see a firm value placed on the American dollar, and he and Mr. Gingrich also agreed on another one of his policies regarding gold.
The former House speaker has proposed a gold commission for the government to reconsider how to implement gold into the U.S. monetary policy. Mr. Paul and Mr. Gingrich would essentially like to see the U.S. implement somewhat of a gold standard, a policy that draws from the Gold Standard Act of 1900, which established gold as the only standard for redeeming paper money. The act was signed into law by then President William McKinley, but was largely abandoned by the U.S. by the 1930s.
“The proposal I’ve issued for a gold commission, which hearkens back to something that he and Jesse Helms helped develop, on which he served on in 1981,” said Mr. Gingrich Monday. “And the fact that we have people of the caliber of Lew Lehrman and Jim Grant, who have agreed they would chair such a commission, I think they’re areas we can work on.”
The announcement by Newt Gingrich that he intends to appoint Lewis Lehrman and James Grant to co-chair a new Commission on Gold will serve as a signal that he has determined, if given the chance, to undertake monetary reform in a serious way. The former speaker made his announcement only days after declaring for a return to the gold standard so that it would be radically more difficult for America to dodge its fiscal problems. After he made his announcement, these columns expressed the concern that we don’t need another commission, for in American politics commissions are normally a way to bury an idea.
The choice of Messrs. Lehrman and Grant signals that Mr. Gingrich is already past the question of whether to go for sound money and is focusing on getting it done. Of Messrs. Lehrman and Grant, the former speaker said: “They are both distinguished students of monetary policy and long-time advocates of a return to hard money — a dollar as good as gold.” Mr. Lehrman was a member of the United State Gold Commission that was set up under President Reagan, and Mr. Grant, editor of the Interest Rate Observer, has emerged as one of the most distinguished journalistic voices in support of gold-backed, honest money.
The moment Mr. Gingrich announced for gold, Messrs. Lehrman and Grant had sent him a congratulatory letter that is a classic of concision and point. They noted that between 1792, when the Congress first defined a dollar, and 1971, when President Nixon abrogated the Bretton Woods Treaty, “Congress defined the dollar by statute as a specific weight unit of gold.” They noted that between 1971 and 2011 — that is, the period of fiat money that is being used today — the dollar has shed 85% of its value. They stressed the importance of establishing convertibility of the dollar to gold a value that will hold for “many generations.”
Mr. Gingrich, in his statement today, signaled that he would be unlikely to prejudge the details of how to end the era of fiat money. “While I am not presently committed to any one version of reform,” he said, “if elected I will be eager to work with Lew Lehrman and Jim Grant in achieving a dollar that once again can hold its purchasing power for many decades to come.” Mr. Gingrich also gave an important salute to Congressman Ron Paul, who has done so much to keep the issue of the collapse of the dollar at the center of the current campaign.