Blogs: Kelly Hanlon
Mr. Lewis Lehrman appeared on Lou Dobbs Tonight on Fox Business News on the evening of August 10, 2011.
A renowned investor, politician, and philanthropist, Lehrman was asked to explain the current financial crisis, including the wild fluctuations in the stock market over the past two-and-a-half weeks. Lehrman persuasively identified the cause for this most recent crisis: the massive European banking crisis and its reverberations throughout the global banking system.
Lehrman looked to historical examples in identifying both the problem and the solution to the present crisis. In this vein, Dobbs pressed Lehrman on the explanation for Federal Reserve policies in the wake of the 2007-08 recession, including the more than ten trillion dollars swapped with foreign central banks. Lehrman replied simply: there are no restraints on the creation of money by the Fed.
Since President Nixon closed the gold window August 15, 1971, the dollar lost 82% of its purchasing power as calculated using CPIs. If using the price of gold, today’s dollar is worth a mere five cents of a 1971 dollar convertible to gold. Confronted with two choices—to abandon the gold standard or to update the dollar price of gold—Nixon chose the politically advantageous route, unilaterally severing the final link between the dollar and gold.
And, so Dobbs questioned Lehrman about the reality of America moving forward to a modernized gold standard. While recognizing that such a shift cannot happen instantaneously, Lehrman pointed out that until we return to sound money, the American people will remain impoverished. Therefore, it is incumbent upon America’s president and Congress to restore the statutory definition of a dollar as a weight unit of gold.
According to Lehrman, “America must lead, other great nations can be persuaded to follow.”
Writing at the beginning of 1974, Lewis Lehrman described the “full inflationary potential” of the Federal Reserve. He said,
The institution of financial discipline, the gold-link or legal gold cover, which had limited the creation of paper and credit dollars was virtually terminated. And predictably, with the ultimate discipline of a legally-required gold cover brushed aside, budget deficits, Fed credit expansion, inflation, and the balance-of-payments crises intensified. Unimpeded by any statutory rule…the Federal Reserve System had the complete discretion to create the new credit and money required by Congress to finance the President’s war budgets and his Great Society deficits."
Nearly forty years later, America continues to suffer from the full inflationary potential of the Federal Reserve Act of 1913. As this graph demonstrates, with complete severability of gold from the dollar in 1971 under President Nixon, the Fed, in fact, actually created the credit and money necessary to finance the war budgets and Great Society deficits of several more generations. Nixon was widely reported to have said, "We are all Keynesians now." However, the popular sentiment was later correctly attributed to Milton Friedman.
Friedman attempted to correct the record by providing the proper context for the sentiment in Time magazine. He said, "In one sense, we are all Keynesians now; in another, nobody is any longer a Keynesian. The second half is at least as important as the first.”
Today, as budget talks continue in Washington, members of Congress and President Obama would do well to recall that we are NOT all Keynesians now. Instead, they ought to consider how to combine sound fiscal policy with sound monetary policy. Spending and tax policies are only one-half—the first half, the Keynesian half—of the equation. The second part—sound monetary policy—is at least as important as the first.
Earlier this week, an article in the Wall Street Journal by Lewis Lehrman sparked a flurry of articles, interviews, and debate about restoring American prosperity through sound monetary policy. Lehrman said,
"Establishing dollar convertibility to a weight unit of gold, and ending the dollar's reserve currency role, constitute the dual institutional mechanisms by which sustained, systemic inflation is ruled out of the integrated world trading system. It would also prevent access to unlimited Fed credit by which to finance ever-growing government."
In other words, the simple mechanism through which the classical gold standard works will restore prosperity at home and abroad. Once the Federal Reserve curtails monetizing our debt and the dollar no longer serves as the world’s reserve currency, we may again move forward. This, of course, requires that monetary and fiscal policy—and their joint effect on the economy—be considered together.
Late last year, the Discovery Channel produced a new reality television series entitled Gold Rush. The program followed a group of unemployed men from the Pacific northwest as they headed north to the Alaskan wilderness in an attempt to strike it rich. Completely inexperienced, the so-called miners leveraged everything they owned to purchase, borrow, and hire the equipment needed to search for gold on a long abandoned claim.
By the end of the summer, at least one of the miners quit and the others were not much better off than when they began. But the dream—the American dream—lived on: to work for something which has inherent value; to ultimately provide for oneself and one's family.
On March 11, the president of the New York Federal Reserve, William Dudley, attempted to explain how the Fed calculates inflation. Dudley used the example of the newly released iPad2 which is both a better product and sells at a lower price than its first-generation predecessor. The working-class public was outraged at this comparison and one of the participants quipped, "Yes, but I cannot eat my iPad."
Rep. Walter B. Jones (R-NC) recalled these sentiments during his opening statement at an historic hearing of the Subcommittee on Domestic Monetary Policy late last week. Panelists included James Grant and Lewis E. Lehrman along with Joseph Salerno, an economics professor at Pace University.
BY KELLY HANLON: