You can give some people all the evidence in the world, present hard proof and argue they are in denial but it may not work to disabuse them of their convictions. I’m not talking about the birthers; the subject is the president, Ben Bernanke and the dollar.
The New York Sun editorializes about yesterday’s news conference:
Even as the chairman was speaking, the economist David Malpass pointed out in a telegram this afternoon, the dollar lost value, dropping to a 1,529th of an ounce of gold. Yet not a word about gold at the press conference. Call it the dog that didn’t bark. The chairman spoke of the high cost of gas without once acknowledging that the price of gasoline is lower in value — meaning it takes less gold or silver to buy it — than it did at, say, the start of President Obama’s term. The president seemed oblivious to this irony when he spoke in his radio address over the weekend of how there is no “silver bullet” that will deal with the soaring gas prices.
What the silver price actual shows is that it’s not the gasoline that’s going up but the dollar that’s going down. So it’s just bizarre for Mr. Bernanke to be talking of a “strong and stable” dollar, which he did, Mr. Malpass pointed out, three times in the press conference. The result is what he called “a disconnect between the rhetoric and the policy” because “the dollar is neither strong nor stable and the U.S. hasn’t supported it.” Said Mr. Malpass, a former official under President Reagan: “For years, Treasury and the Fed have acted as if the current value of the dollar qualifies as “strong and stable.” This severely undercuts the credibility of Treasury and the Fed on the dollar.”
Larry Kudlow is likewise perturbed. Noting that gold prices “surged” during Bernanke’s news conference, he argued, “Mr. Bernanke just doesn’t get that inflation-sensitive market-price indicators — like rising gold, oil, and commodity indexes, and the falling dollar exchange rate — are trying to signal higher future inflation. Instead of listening to markets, he is determined to fight them. This is a losing battle.”
Kudlow is right to be dismayed. The risk is no longer deflation (as it was in the direct aftermath of the 2008 financial meltdown), but inflation. Kudlow recalled that Ronald Reagan (and his Fed chairmen) understood the need for “a strong and reliable currency”:
The 20-year collapse of gold prices that ensued was associated with a remarkable non-inflationary prosperity and a huge stock market rally that generated unbelievable volumes of new wealth for investors and entrepreneurs.
Today, this hard-money thinking is nowhere to be found in official Washington. Yes, the Fed can produce new money. But no, it can’t produce new jobs and growth in any permanent sense. What does? Limited spending, flat tax rates, minimal regulation, and stable money.
Ultimately, it is not what Bernanke says but what the markets do that matter. Bernanke assures us that all is fine, inflation is temporary. But so far, his bromides about a strong dollar remain at odds with economic reality. Bloomberg reports today: “The Dollar Index fell to a three-year low and gold climbed to a record after the Federal Reserve renewed its pledge to keep U.S. interest rates near zero. . . . Gold jumped to $1,534.05 an ounce and copper climbed 0.9 percent.” The 30-year bond’s tumble is further evidence of inflation expectations. Bernanke, however, seems no more likely than hard-core birthers to give up his myths.