Federal Reserve (Fed) Chairman Bernanke, in a verbal duel with Representative Ron Paul, provided insult to injury to hard money appreciating investors. When asked whether gold should be considered money, Bernanke replied: "no"; when further quizzed why central banks then hold gold reserves, Bernanke brushed the question off, suggesting gold is simply held because of tradition.

This occurred after Bernanke claimed that Fed policy has been profitable, as manifested by the billions in profits paid to the Treasury, as a result of the policies pursued. To make it clear: when a central bank prints trillions of dollars to buy securities, those securities will of course pay record amounts in interest. However, it is misleading to conclude that such operations are profitable; the money printed dilutes the very value of the currency those profits are paid in.

Whereas one can't simply print gold, printing dollars may debase the value of the currency. Claiming that Fed operations are profitable, while ignoring the fact that the currency itself may be debased, is rather irritating to those that believe that a central bank's role is to pursue sound monetary policy. Sound monetary policy is a pursuit of price stability, not one of generating paper profits on printed money.

Bernanke firmly embraces the U.S. dollar as a monetary policy tool; in our analysis, he has worked on weakening the dollar in both word and action. In the past, Bernanke has testified that going off the gold standard has helped the U.S. recover faster from the Great Depression than other countries that held on to the gold standard for longer. Bernanke has argued that a weak dollar is not inflationary (we disagree). The action of buying government securities by a central bank causes such securities to be intentionally overvalued; rational investors may look overseas for less manipulated returns.

Not surprisingly, the U.S. dollar moved sharply downward as Bernanke started speaking in his testimony to the House of Representatives, where the above exchange between Ron Paul and Bernanke took place.