GOP candidates need to talk more about the Fed

Three Republican presidential candidates - Herman Cain, Ron Paul, and Newt Gingrich - have at least hinted about the desirability of a return to the gold standard. The four top Republican congressional leaders recently called on the Federal Reserve to curb its interventions in the U.S. economy. In early October the Heritage Foundation held a two-day sound money conference in which both keynote speakers - New York investment banker Lewis Lehrman and former presidential candidate Steve Forbes - called for adoption of a gold-backed dollar. Advocating the replacement of Fed chairman Ben Bernanke has become a staple of virtually all the presidential candidates. (Even establishmentarian Mitt Romney has joined in, apparently rendering inoperative his April defense of Bernanke.)

So Republican elites are rapidly climbing the learning curve on monetary policy, certainly in comparison to the days when presidential candidate John McCain joked that if anything happened to then-Fed chairman Alan Greenspan, his corpse should be propped up and nominated to a new term. But to understand fully the unspoken alliance between President Obama and Chairman Bernanke, and the threat it poses to Republican hopes in the 2012 election, the GOP still has some distance to go.

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There is, of course, nothing new about political symbiosis between presidents and Fed chairmen - most definitely including Fed chairmen originally appointed by a president of the other party. Conservatives of a certain age have not forgotten the 1993 sight of Reagan appointee Greenspan sitting in the gallery next to Hillary Clinton at a joint session of Congress, tacitly blessing Bill Clinton's stiff tax rate increases.

But Bernanke's replication of the Obama reelection campaign's talking points is setting new standards of subservience. In the question-and-answer period after a recent speech in Cleveland, for example, Bernanke described long-term unemployment as a "national crisis," noting that 45 percent of the unemployed have been out of work for at least six months.

"This is unheard of," Bernanke correctly noted. "This has never happened in the postwar period in the United States. They are losing the skills they had, they are losing their connections, their attachment to the labor force." According to the Associated Press, Bernanke "suggested that Congress should take further action to combat it."

Congress? The stubborn duration of high unemployment is exactly matched by the uniqueness and duration of Bernanke's zero-interest-rate policy that is its single biggest cause. Zero interest rates, accompanied by lavish Fed printing of new dollars, pump up the U.S. bond and stock markets, providing plentiful financing for big banks and big business, but offer little or no incentive for medium and small banks to make available the lines of credit that are the bread and butter of thriving small businesses.

Stanford economist Ronald McKin-non estimates that lines of credit to small businesses have declined by two-thirds in the nearly three years the Fed's zero-interest-rate policy has been in place. And small businesses account for the bulk of net job creation. Continued zero interest rates mean continued high unemployment. And in August, Bernanke's federal open market committee voted 7-3 to keep zero interest rates in place until at least mid-2013. (The policy began in December 2008.)

In the wake of that extraordinary announcement, Camden R. Fine, president of the Independent Community Bankers of America, could not contain himself. In an op-ed in the Washington Post, he wrote: "I kept staring at that number, 2013, assuming that it was a mistake. . . . 

One would think that the Fed would have considered the unintended consequences of such a unilateral move. In short, the Fed has taken away community bankers' ability to compete in the free market. In the midst of a depressed economy with low loan demand, the central bank is exacerbating the financial crisis. Why? In my view, the Fed's policy is nothing more than a backdoor bailout for the Wall Street mega-banks and investment houses; it amounts to the back of the hand for the community banks of this country . . . turning its guns on the very players in our economy that create jobs and support small business. Once again, Wall Street gets a bailout?--?on the backs of Main Street's banks, small businesses, and hardworking Americans.

Congress has many powers, actual and potential. Freezing the economy of Main Street by imposing zero interest rates on the country's small businesses, community bankers, and middle-class savers is not among them. Only the Fed can do that. But Bernanke's call for Congress to see to the matter is of a piece with a whole range of similar Bernanke pronouncements calling for congressional action to deal with various aspects of the economic crisis both he and the Obama administration finally admit we are in.

To most conservatives, Obama's campaign for the American Jobs Act is a joke. The bill is so determinedly a warmed-over reprise of earlier, failed policies that it appears consciously designed for Republican rejection. But there are signs that the president's deeper strategy of blaming Congress, understood as Republican-dominated, for his own failures is capable of succeeding.

In early September, a Washington Post/ABC News poll found voters divided 40-40 on whom they trust more to create jobs, the Obama administration or congressional Republicans. Just a month later, in the wake of Obama's intense barnstorming, 49 percent said Obama can be trusted, with only 34 percent choosing the GOP. The swing toward trusting Obama was even bigger among independents.

It will be a political tour de force if Democrats succeed in blaming a three-year record of economic stagnation on a party that has had control of one legislative branch for less than one year of those three. For it to work, the debate must be restricted to fiscal policy. Then the premise will be that congressional obstructionism is preventing action on measures that both sides "know" will allow the economy to resume its creation of new jobs.

The ultimate destination of this narrative was previewed by Obama campaign manager Jim Messina, who last week accused Republicans of trying to keep unemployment high to increase their 2012 vote totals: "Their strategy is to suffocate the economy for the sake of what they think will be a political victory," he wrote in an email to supporters. "They think that the more folks see Washington taking no action to create jobs, the better their chances in the next election. So they're doing everything in their power to make sure nothing gets done." Democrats and the mainstream media define getting something done, of course, as sharp tax increases and draconian defense cuts, neither of which seems particularly well designed to bring on a burst of job creation.

Among the Republican presidential candidates, Newt Gingrich seems furthest along in understanding that the exclusion of monetary policy from the debate is a mortal threat to Republicans in 2012. He delivered a major speech attacking Fed policy back in June, and his discussion of monetary policy has been accelerating since then. In last week's Washington Post/Bloomberg debate he opened the door for the first time to what he described as a "hard money" policy, which positions him rhetorically next door to advocacy of a gold-backed dollar.

One of the establishment reporters at the debate made the mistake of asking Gingrich a question lifted from the Obama/Democratic playbook: "Do you think it's right that no Wall Street executives have gone to jail for the damage they did to the economy?" Gingrich replied, "Everybody in the media who wants to go after the business community ought to start by going after the politicians who have been at the heart of the sickness which is weakening this country and ought to start with Bernanke."

If Republicans keep their eye on the monetary ball, they can still avoid being outwitted in 2012 by the endgame.

Bio: Jeffrey Bell is policy director of the Washington advocacy group American Principles and head of its GoldStandard2012 campaign. The opinions expressed in this commentary are solely those of the author.