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The one missing element in the news stories just put up in respect of the quantitative easing by the Federal Reserve is the comment issued by the one of the individuals who sits directly above Chairman Bernanke in the constitutional pecking order. This is the chairman of the House subcommittee on domestic monetary policy, Ron Paul. He’s none too pleased with the direction in which the Fed is going. “The Fed’s only solution for every problem is to print more money and provide more liquidity,” Dr. Paul said in a statement today. “Mr. Bernanke and Fed governors appear not to understand that our current economic malaise resulted directly because of the excessive credit the Fed already pumped into the system.” Added he:

“For all of its vaunted policy tools, the Fed now finds itself repeating the same basic action over and over in an attempt to prime the economy with more debt and credit. But this latest decision to provide more quantitative easing will only prolong our economic stagnation, corrupt market signals, and encourage even more misallocation and mal-investment of resources. Rather than stimulating a real recovery by focusing on a strong dollar and market interest rates, the Fed’s announcement today shows a disastrous detachment from reality on the part of our central bank. Any further quantitative easing from the Fed, in whatever form, will only make our next economic crash that much more serious.”

Dr. Paul’s remarks were underscored by the market for constitutional money — i.e., gold and silver. The Kitco chart for gold is dramatic. In the space of an hour or so, it shows the value of the dollar collapsing to less than a 1,770th of an ounce of gold from more than a 1,720th of an ounce. The way Kitco’s chart works, it’s a green line suddenly shooting straight up against a side rail representing the gold price. What an astonishing vote of no confidence in what the Federal Reserve is doing. No doubt Mr. Bernanke will mark, as the Fed did in its formal statement, the fact that the mandate it has from the congress is to keep an eye on both prices and employment.

Of course, we’ve been easing quantitatively for years now, and unemployment is still above 8%, even as an astonishing number of would-be workers drop out of the labor force altogether. Not only is quantitative easing failing to solve the problem it was ostensibly undertaken to solve, but, according to one of our favorite economists, David Malpass, it is actually making things worse. “In our view, Fed bond purchases are weakening the economy’s output by misallocating capital — channeling capital into [mortgage backed securities], government bonds, gold and commodities rather than allowing a market-based allocation of capital to job-creating businesses. The stronger the Fed’s forward guidance, the more self-fulfilling the economic weakness.”

What one can take from today’s commitment by the Fed to a long period of further quantitative easing is that the impetus for monetary reform will be with us well after the election in November. So win, lose, or draw at the polls, the Republican Party has put itself in a strong position by including in its platform a call for a new gold commission to look at a metallic basis for money in a new monetary reform. Congressman Paul himself will not be in the Congress to nurse this question from the chairmanship of the subcommittee on monetary policy. We look forward to the possibility that a gold commission is constituted and he becomes a part of it.

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