Interview: Alex Pollock on the Fed and Gold | Part I

Published by The Institutional Risk Analyst.

October 3, 2025 | In this special edition of The Institutional Risk Analyst, we feature a discussion with Alex Pollock, Senior Fellow at the Mises Institute. Alex provides thought and policy leadership on financial issues and the study of financial systems. He was president and CEO of the Federal Home Loan Bank of Chicago from 1991 to 2004. We spoke with Alex from his home in Lake Forest, Illinois.

The IRA: Alex, thank you for taking the time to speak with us today. We were at the Lotus Club yesterday talking about Inflated: Money, Debt and the American Dream. One of our former colleagues from Bear, Stearns attended.

Pollock: Know something you and I have in common?

The IRA: Tell us.

Pollock: You worked for Bear Stearns. I worked for Continental Illinois. Two firms that are no longer with us. Educational experiences.

The IRA: We were looking at the FINRA record while doing CE. It now lists JPMorgan as our first employer instead of Bear, Stearns. Well, so technically we worked for Jamie Dimon once upon a time. Thank you for sending over your latest testimony on the Federal Reserve, “How Congress Should Oversee the Federal Reserve’s Mandates.” It provides an interesting counterpoint to the essay by Treasury Secretary Scott Bessent in The International Economy about reforming the Fed. We don’t think that anything will happen on reforming the central bank before the Republic has another financial crisis, but there you are. We are very happy to be living in Westchester County, though, instead of New York City. Leaving Gotham in 2021 was a good move and cut our living expenses by more than half.

Pollock: I feel the same about Lake County, Illinois.

The IRA: Despite the political and fiscal troubles in Chicago, we see that the developers are all scurrying back into greater Chicago. This despite the carnage for the banks. Developers must do development or they'll be out of business. Somebody just took Bank OZK (OZK) out of their misery in Lincoln Yards. But we digress. Let’s spend a little bit of time talking about the Fed and then we can switch gears and talk about gold if that works for you. Or maybe we’ll just talk about gold.

Pollock: Two highly related topics.

The IRA: What questions and comments did you get from the Financial Services Committee members when you were up on the hill talking about the Fed? Do you think any of them understood some of the points you made in your excellent testimony?

Pollock: The testimony was to a task force of the Financial Services Committee. We got some very good questions, including questions on what is the chief thing the Fed is supposed to do. I like the idea that the guiding fundamental principle should be that the first responsibility of the central bank is to provide a sound currency. I recommended that the Financial Services Committee in the House and the Banking Committee in the Senate should both have subcommittees devoted solely to the Fed. The monetary system is so overwhelmingly important that that would make a lot of sense. And then you would get a focus and a buildup of expertise over time. Members of Congress, if they serve on a committee long enough, become quite knowledgeable. Incidentally, the hearing last month was held in the Wright Patman room...

The IRA: Oh, of course. Rep Wright Patman (D-TX) was a long-serving and populist politician from Texas. Known as a "fiscal watchdog," he served in the House for 24 consecutive terms, from 1929 until his death in 1976. Henry Reuss (D-Wisconsin) succeeded Patman in 1975. We can recall appearing before another great Texas populist, Chairman Henry B. Gonzalez (D-TX), years later. Gonzalez, who thought there was gold hidden below the Federal Reserve Board, became chairman in 1989. Chairman Gonzalez was responsible for discovering the secret FOMC transcripts.

Pollock: Wright Patman chaired what was then the Committee on Banking and Currency for 12 years. He was a big believer in the responsibility of Congress to oversee and direct the Fed. It was the Democrats in those days who thought that Congress should watch the Fed’s operations closely. Did you enjoy my quote from former Democratic Senator Paul Douglas to William McChesney Martin? –the one about, “I've typed out your saying that the Fed is an agency of the Congress. I'm giving you a piece of scotch tape so you can tape this up on your bathroom mirror and look at it every morning.” I got a big kick out of that.

The IRA: Does the Congress really have any operations? I thought they were delegating all of the operational aspects of government to the executive branch.

Pollock: The Fed should and does have oversight and policy guidance from Congress. Congress does not need to operate the central bank. Congress instructs their agency, the Fed, which as is often said, comes under the money power, the constitutional money power under Article One, Section 8. As you know, the Constitution says “coining” money, which we read these days metaphorically.

The IRA: In those early days of the Republic, it was an acute need for an exchange medium that drove the Framers to give Congress power over money. Americans used barter for most exchanges and Spanish “pieces of eight” and pounds sterling for money in the 1700s.

Pollock: The Constitution then says “and regulate the value thereof.” Well, regulate the value of money is a congressional duty, in my view, not just a power. It is a duty under the Constitution and overseeing the Fed as part of that. That power is solely a congressional power and not an executive branch power.

The IRA: The central bank is clearly a peculiar institution because of the Constitutional empowerment regarding money, something that was extremely controversial at the end of the 18th Century. The fact that the Framers gave Congress this first mandate does not receive enough attention and supports your call for greater congressional oversight.

Pollock: Congress ought to want to take it seriously, the way Wright Patman and Henry Gonzalez did in their day. But the Democrats flipped and said, well, we ought to let the Fed do whatever it wants. It's very historically interesting, that flip. Anyway, there's another power though that's very relevant and that is the taxing power. The power of taxation under the Constitution is given solely to the Congress, in that same article of the Constitution. Inflation is a tax. Inflation is simply taking purchasing power away from the people and giving it to the government. The Fed creates inflation. The Fed is taxing. The Fed is responsible to Congress for its taxing activity.

The IRA: As Robert Eisenbeis of Cumberland Advisors taught us years ago, the Fed is always an expense to the Treasury when you net out all of the cash flows. The Fed gives the Treasury back its own money earned from securities, less operating expenses. And you are correct that the Fed is a taxing unit, an instrument of financial repression. But the Bernanke Fed onward with QE expropriate the assets of the Treasury without congressional authority and proceeded to lose money on their speculations! They also mismanage the Fed’s assets and liabilities.

Pollock: Those losses are also a tax. When the Fed created a giant savings and loan type balance sheet on its own books, and has now lost $242 billion as a result, that is taxation, that is spending the taxpayer's money in a fiscal action without authorization of Congress. It comes right out of the remittances to the Treasury.

The IRA: Ben Bernanke and Alan Greenspan before him figured that Congress had no idea so better just do what is necessary to keep the ship moving forward. But Alex, don't you think the evil goes back to 1935 when FDR created the Board of Governors and brought all of this to Washington? Since the New Deal, the Fed has taken on the role of a state planning agency like the Soviet GOSPLAN. Bernanke creates quantitative easing, where the Fed buys trillions in Treasury securities and also mortgage bonds, driving up home prices. And this is all done under the rubric of the Elastic Clause in Article I, Section 8, “necessary and proper”. The Fed is basically free riding on that part of the Constitution.

Pollock: The 1935 Banking Act centralized the power of the Fed under FDR. Senator Carter Glass (D-VA) in his day used to ask witnesses before the Senate Banking Committee if the United States had a central bank. The answer he wanted was, “No, it does not. It has a federal system of regional reserve banks.” That was the Jeffersonian idea of Glass until 1935. And as you are saying, they flipped this around and centralized the power in the Board of Governors in Washington–the name was changed as a symbol of the power shift. The heads of the regional reserve banks were originally called “governor,” the Governor of the Federal Reserve Bank of New York or Chicago or whatnot. Also, Congress created the Federal Open Market Committee as a statutory body in 1935. It was originally a committee of the Federal Reserve banks themselves.

The IRA: FDR turned the Fed into a unitary central bank a la Europe.

Pollock: The Fed became a centralized body dominated first by the Board of Governors, but really by the chairman. So you got two centralizations going on here in the Fed after 1935. One is a centralization of power out of the rest of the country into Washington, into the Board. And the second is the centralization of power in the office of the Chairman of the Federal Reserve Board, who is the chief executive of that agency and for whom all the staff works. All the hundreds of PhD economists and everybody else all work for the Chairman. And so you get this much increased power of the Chairman hitting a peak, I will say, in the days when Greenspan became “The Maestro.”

The IRA: Clearly some of the Governors and Reserve Bank presidents were unaware that transcripts of meetings were being stored by Greenspan. We first reported on Chairman Gonzalez catching Greenspan obfuscating regarding the FOMC minutes in 1993 for the Christian Science Monitor. Now the Trump White House may not allow the reappointment of Reserve Bank presidents unless they toe the MAGA line on interest rates.

Pollock: Greenspan had become enormously powerful, a kind of a media star. But then as you point out, the Fed’s mission creep hit another peak in the days of Bernanke and quantitative easing, manipulating the bond market, manipulating the mortgage market by buying a couple trillion dollars of 30-year fixed rate loans, which never were historically and never should be on the books of the Fed.

The IRA: The Fed may own those securities for decades to come. The Fed’s MBS have such low coupons that the average lives for the securities may be close to 15 years. There are a lot of lenders who would like the Fed to resume buying MBS. And I'm a little worried that Trump, who's not really a conservative, may want to go there if he puts Kevin Hassert in as Fed chairman. Having the Fed buy MBS will just push home prices higher.

Pollock: A central bank in principle can buy anything–not necessarily legally, but in principle. For example, as you know, the Central Bank of Switzerland has a giant equity portfolio. It's a big investor on the New York Stock Exchange. The dollar investments in Switzerland were part of their keeping down the Swiss franc. But they also of course own gold. We're going to get to gold later, but how much gold does the Fed own?

The IRA: None.

Pollock: Zero. Not one ounce. I think it's one of the few major central banks that doesn't own any gold.

The IRA: But the absence of gold was part of the American management of the post Bretton Woods period, when US officials poo-pooed gold and didn't want anybody to talk about it. As we can now see, that strategy ultimately failed and gold is again the largest reserve asset in the world. If you look at the timeline of all of the official actions that were meant to discourage people from talking about or owning gold, ultimately they failed in the late 1960s. The US withdrew from the London gold pool a year before Nixon shut the gold window in 1971.

Pollock: There is a great story in Paul Volker's autobiography, Keeping At It: The Quest for Sound Money and Good Government. Volcker was at the Treasury under Nixon and they knew they had a big problem with dollars and gold. They knew that they were going to have a lot of trouble maintaining the $35 peg. He tells the story in the book they were having meeting after meeting over what are we going to do, coming up with scheme after scheme to somehow prop up the dollar and hold down gold and so on. And he said there was an old Treasury guy who'd been at the agency for decades, and he would sit in these meetings when they'd come up with some scheme or other, and at the end of the discussion, this guy would say, “It won't work.”

The IRA: You mean like selling gold to force the dollar down? Thats Steven Miran’s idea. The history of the United States suggests that selling paper and buying gold is a better strategy. But then again, many of these same people think that crypto tokens are the future of money. Americans are the only people dumb enough to think we can use buttons as money.

Pollock: Well, the guy in Paul Volcker’s story was right. There was nothing they could do. By that time the dollar peg to gold was on the way out. By then the game was already lost. I guess maybe they could have devalued instead of simply defaulting on the commitment of the American government to redeem dollars for gold at $35 an ounce. You could have devalued and set a new price, but it would've been a big devaluation, like $70 or even a hundred dollars an ounce, something like that.

The IRA: The dollar is already down below the lows of Trump I. But that's the history of the fiat currency. On the one hand, the legal tender fiat dollar is the greatest invention ever. But if you don't have some degree of fiscal restraint, and you can't in a democracy, then ultimately it doesn't work to the point of the Treasury official in Volcker’s story. That's where we're are today.

Pollock: Where we were and maybe where we are again. Can I give you a great quote on this? An excellent private memorandum on gold viewed in the long term says, “A higher money price of gold is best read as a symptom of a weaker currency. It isn't really the gold going up, it's the dollar or fiat currency in general going down.” That seems to me to be right. And then he says, “The value of gold lies in being independent from political discretion. Fiat money is a claim on the future discretion of politicians.” Isn't that good?

The IRA: Indeed. Thank you for your time Alex

END PART I

We'll feature the second part of the discussion with Alex Pollock regarding the Fed and gold in a future issue of The Institutional Risk Analyst.