The Heritage Foundations’ ‘Sound Money’ conference gathered many individuals convinced that something needs to be done to change the monetary system. The strategy advocated by some members of a panel (entitled, “Congressional Changes”) was to offer gold as a ‘competitive’ currency option at the state and national level.

Gold standard advocates have had some success with state-level laws but they are also interested in laws at the national level which will give preferences and advantages to individuals who either already own gold or individuals who plan to make gold investments. Even if a gold standard is not adopted, some gold owners and investors may still benefit from the proposed changes. (Though the question should be asked: at whose expense?)

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The Heritage Foundation is currently hosting a conference it bills as a “Conference on a Stable Dollar.” The words “Gold Standard” do not appear in the title of the event but that is what the conference is about.

Near the end of the first panel (entitled: What is a Stable Dollar?), Stuart Varney, a Fox News host and moderator of the panel, asked the audience to raise their hands if they thought that gold should be part of some sort of monetary reform. Nearly the entire audience of wonks, academics, college students, and hedge fund managers raised their hands. How did the conservative movement reach this point?

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Remember how the Fed’s easy money stance was supposed to drive commodity prices higher and higher?

Ooops.

S&P GSCI Index dropped 24% since April, signalling a bear market

4 Oct, 2011, 0506 hrs IST, Bloomberg

LONDON: Commodities fell to a 10-month low as signs of a contraction in European manufacturing signalled slowing demand for raw materials.

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In my interview with economist John Makin, he said that the congressional GOP sent its anti-stimulus letter to the Federal Reserve not because they thought the letter would change the decision, but so they could mark down their opposition to Bernanke’s policies.

Is this opposition cynical or sincere? Do Republicans want the economy to be weaker to see Obama lose reelection in 2012 or do they genuinely believe their new ideas on monetary policy? The fact that the influential Heritage Foundation has decided to hold a conference on monetary policy suggests that many in the conservative movement are convinced that they should support a policy of tighter money.

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The Federal Reserve has announced that it will undertake a policy option that the media is calling “Operation Twist.” It will attempt to stimulate the economy by purchasing long term treasuries and selling off its short term holdings, but what will this mean in practice? FrumForum spoke with AEI economist John Makin to unpack the latest FOMC plan.

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Monetary policy watchers have reason to be discouraged by recent news. The GOP issued a warning letter to Ben Bernanke against further action, and the FOMC is not adopting aggressive stimulus.

Yet some centers of the conservative universe do see the need for Federal Reserve action. The latest edition of the journal National Affairs includes an essay by economist Scott Sumner (of the blog, The Money Illusion) which makes the case for the Federal Reserve to adopt a new mandate: to target nominal GDP.

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At the end of the 1980s, the US was hit by a severe financial shock: the Savings & Loan crisis. I’ll spare you the antique details of the crisis, but in 1990 the US found itself looking at perhaps $200 billion in federally insured bad loans by the failed S&L industry. The economy slipped into a recession, nothing like so severe as the present-day recession, but bad enough.

Soon afterward, Saddam Hussein invaded Kuwait, shocking global oil prices.

Responding to the crisis, the Federal Reserve rapidly and repeatedly lowered interest rates. It cut the Federal Funds rate 18 times between 1990 and 1992, reducing it from 8% to 3%. These bold monetary actions failed however to produce recovery on a timetable to gain re-election for President George HW Bush.

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I’m not shocked by much any more, but I am shocked by this: the leaders of one of the great parties in Congress calling on the Federal Reserve to tighten money in the throes of the most prolonged downturn since the Great Depression.

One line in the letter caught my eye as summing up the unreality of the Republican leaders’ position:

We have serious concerns that further intervention by the Federal Reserve could exacerbate current problems or further harm the U.S. economy. Such steps may erode the already weakened U.S. dollar or promote more borrowing by overleveraged consumers.

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… sounds technical doesn’t it? But those dry words represent a direct challenge to the GOP’s current deflationary orthodoxy. Bravo to NRO for offering space to an economist to make the case.

It’s time for conservative politicians to be bold and serious about monetary policy and not simply use rhetoric to capitalize on a popular view of the conservative base.

According to the Bureau of Labor Statistics, there have been no net new jobs made at all in August. Zero.

This not only raises the stakes for what Obama needs to say in his much-hyped speech next week, it also puts more pressure on the Federal Reserve to consider stronger action.

Even one of the Federal Reserve Bank Presidents who is considered an inflation hawk knows that some inflation could be helpful for job creation.

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