The worldwide economic crisis presents President-elect Barack Obama with a golden opportunity to establish his leadership bone fides preemptively before the anticipated foreign challenge comes to test his mettle as a leader. As the world’s leaders prepare a summit to discuss establishing a new “global financial architecture,” the president-elect should forestall efforts by European leaders to give him a bum’s rush down the path toward global governance and strip the United States of its economic sovereignty. He can do so by launching his presidency with a legacy-making initiative that would hit the reset button on the economy and restore the U.S. dollar to its preeminence as a resilient reserve currency.
Before the global economic summit occurs in late November, the president-elect should announce that his first act as president will be to send the United States Congress legislation making the dollar as good as gold once again.
As the world’s leaders wring their hands over tumultuous financial markets and a slumping world economy, they are advocating all manner of ill-conceived solutions entailing a huge new international bureaucratic order of global regulators - a so-called “new international financial architecture for the global age.” According the German Chancellor Angela Merkel, “This is about no less and no more than the creation of a new financial constitution.”
Mrs. Merkel would begin by increasing the power of the International Monetary Fund to give it a supervisory role in international finance and make it, in her words, a “guard” of financial stability - the first steps toward making the IMF a global central bank. French President Nicolas Sarkozy and Britain’s Prime Minister Gordon Brown want to create a new international regulatory body to supervise large banks that operate across national borders. Italian President Silvio Berlusconi is not so coy. He talks openly about a world where the euro replaces the dollar as the reserve currency.
What Messrs. Berlusconi, Brown, Sarkozy and Mrs. Merkel seem not to comprehend is that the global economic crisis is not the result of too little and too decentralized regulation but rather it results from a regime of floating fiat currencies managed by central-bank bureaucrats who don’t have (cannot possibly have) a clue what they are doing to maintain sound money. The 37-year experiment of central-bank-managed floating fiat currencies has failed, and it must be abandoned.
The world doesn’t need and cannot afford elaborate international bureaucracies to run the world economy; what the world needs now is an economic order prudently regulated by national governments that integrates national and regional economies through open markets, free trade and sound money.
President-elect Obama now has a golden opportunity to lead the way by restoring the dollar to its unassailable preeminence as the world’s reserve currency. No elaborate negotiations required.
First, the new president-elect should state his unshakable resolve to preserve U.S. sovereignty over its currency and economy. He must root his resolve in a declaration calling upon the Congress to exercise its authority under Article I, Section 8 of the United States Constitution to regulate the value of the dollar and maintain the standard by which the value of the dollar is measured; and that he will do everything in his power to faithfully execute and implement the law Congress adopts to carry out that responsibility.
Second, President Obama should ask the Congress to establish the standard by which the value of the dollar is measured - the monetary numeraire - by restoring the dollar’s link to gold and defining the measure of the dollar in terms of a specified weight of gold.
Third, President Obama should ask the Congress to send him legislation to sign within his first 100 days as president eliminating the Fed’s discretion to debauch the currency and set interest rates by requiring it to conduct monetary policy subject to a simple, non-discretionary rule. That rule would instruct the Fed to conduct open-market operations (i.e., buy and sell securities in the open market) with the sole purpose of maintaining the dollar price of gold within a narrow statutory band about the statutory price of gold that defines the dollar’s value as a financial measure or numeraire. No large gold reserves are required under such a gold-price rule.
Fourth, in order to ensure that markets, not bureaucrats, enforce the law and automatically maintain a sound dollar, President Obama should ask the Congress to require the U.S. Treasury Department to redeem dollars for gold and gold for dollars upon demand at the statutory price of gold.
Making the dollar as good as gold once again would hit the reset button on the American economy and launch it forward toward stability and prosperity, and it would accomplish what Candidate Obama promised the American people he would do as president: It would change America and the world dramatically for the better.
• Lawrence A. Hunter is former staff director of the congressional Joint Economic Committee and currently president of the Social Security Institute.