Steve Forbes reveals the two questions that must be answered by President Trump's nominee for the Federal Reserve, or the U.S. risks economic catastrophe.
00:00There are two big questions that President Trump's nominee for the Federal Reserve must be asked.
00:06If the answers are wrong, we could soon be headed for a round of bad economic news.
00:16Hello, I'm Steve Forbes, and this is What's Ahead, where you get the insights you need to better navigate these turbulent times.
00:23President Trump has nominated Stephen Myron to fill a vacancy on the Federal Reserve Board of Governors.
00:30The board sets policy for a central bank, most notably the level of interest rates.
00:36Myron currently heads the President's Council of Economic Advisors.
00:40He may well succeed Federal Reserve Chairman Jerome Powell when Powell's term expires next year.
00:47At his upcoming confirmation hearing for becoming a Federal Reserve governor,
00:50Senators must probe Myron on two fundamental questions.
00:55How important does Myron think it is to have a dollar stable in value?
01:01And does Myron believe that prosperity causes inflation?
01:05The definition of inflation is reducing the value of a currency, usually, but not always, by creating too much of it.
01:13This the Federal Reserve can directly affect by making a stable dollar the chief goal of monetary policy.
01:20The Fed can't control prices going up because of disturbances to production, from natural disasters, wars, and government actions like costly regulations,
01:30the pandemic lockdowns, or higher taxes such as tariffs.
01:34Unfortunately, our central bank really can't seem to distinguish between non-monetary inflation,
01:41emanating from events such as floods or the imposition of sales taxes,
01:45and monetary inflation that comes from devaluing the dollar.
01:50Hence, we get the spectacle of the current Fed boss, Jerome Powell, huffing and puffing about tariffs.
01:56Incredibly, central bankers don't grasp the basic importance of currency stability.
02:02They hardly ever mention the subject.
02:04Of course, they do understand, as does everyone else, the necessity of fixed weights and measures for efficient markets.
02:12The number of ounces in a pound doesn't fluctuate, nor do the number of inches in a foot.
02:17Yet money performs the same function of measurement.
02:20In this case, it measures value.
02:23It's a tool that facilitates commerce, the buying and selling of countless items and services each and every day.
02:30The idea of a fixed value for the dollar should be no more radical than having fixed measurements for weighing items or measuring distances.
02:39The best way to keep the dollar stable is to fix it to gold.
02:44For a variety of reasons, the yellow metal keeps its intrinsic value better than anything else.
02:49Not perfect, but it's been the best yardstick for thousands of years.
02:53Since a formal gold standard is taboo these days, the Fed could use an informal range and also refer to a basket of commodities,
03:03since commodities often quickly reflect changes in the value of the dollar.
03:08This brings us to the second giant and highly related question.
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