Judy Shelton, Trump's Next Fed Choice, Favors a Gold Standard and Free Trade

-edited

Economist Judy Shelton, a Trump economic advisor and a gold standard advocate is rumored to be Trump's next Fed pick.

Bloomberg reports White House Considers Economist Judy Shelton for Fed Board

The White House is considering conservative economist Judy Shelton to fill one of the two vacancies on the Federal Reserve Board of Governors that President Donald Trump has struggled to fill.

She’s currently U.S. executive director for the European Bank for Reconstruction and Development, and previously worked for the Sound Money Project, which was founded to promote awareness about monetary stability and financial privacy.

Case for Monetary Regime Change

On April 21, Judy Shelton had an ope-ed in the Wall Street Journal: The Case for Monetary Regime Change.

Since President Trump announced his intention to nominate Herman Cain and Stephen Moore to serve on the Federal Reserve’s board of governors, mainstream commentators have made a point of dismissing anyone sympathetic to a gold standard as crankish or unqualified.

But it is wholly legitimate, and entirely prudent, to question the infallibility of the Federal Reserve in calibrating the money supply to the needs of the economy. No other government institution had more influence over the creation of money and credit in the lead-up to the devastating 2008 global meltdown. And the Fed’s response to the meltdown may have exacerbated the damage by lowering the incentive for banks to fund private-sector growth.

What began as an emergency decision in the wake of the financial crisis to pay interest to commercial banks on excess reserves has become the Fed’s main mechanism for conducting monetary policy. To raise interest rates, the Fed increases the rate it pays banks to keep their $1.5 trillion in excess reserves—eight times what is required—parked in accounts at Federal Reserve district banks. Rewarding banks for holding excess reserves in sterile depository accounts at the Fed rather than making loans to the public does not help create business or spur job creation.

Meanwhile, for all the talk of a “rules-based” system for international trade, there are no rules when it comes to ensuring a level monetary playing field. The classical gold standard established an international benchmark for currency values, consistent with free-trade principles. Today’s arrangements permit governments to manipulate their currencies to gain an export advantage.

Money is meant to serve as a reliable unit of account and store of value across borders and through time. It’s entirely reasonable to ask whether this might be better assured by linking the supply of money and credit to gold or some other reference point as opposed to relying on the judgment of a dozen or so monetary officials meeting eight times a year to set interest rates. A linked system could allow currency convertibility by individuals (as under a gold standard) or foreign central banks (as under Bretton Woods). Either way, it could redress inflationary pressures.

Money Meltdown

Judy Shelton is author of the 1998 book Money Meltdown.

I just ordered the book to have a better idea where she is coming from.

Regardless, I am certain she would have been a better choice for Fed chair than Powell, Bernanke, Yellen, or Greenspan.

Bubbles of Increasing Amplitude

Shelton concluded "Central bankers, and their defenders, have proven less than omniscient."

Indeed.

The judgement of the Fed has produced three consecutive bubbles, each bigger than the one before it. The only reason the latest bubble is not acknowledged yet is that it hasn't yet burst.

It's not clear precisely what Shelton has in mind but at least she is headed in the right direction. What's clear is Trump is fighting the wrong battle when it comes to trade.

Tariffs will not fix the alleged problems of currency manipulation. A gold standard would.

For discussion, please see:

  1. Disputing Trump’s NAFTA “Catastrophe” with Pictures: What’s the True Source of Trade Imbalances?
  2. Mission Impossible: Tariffs Didn't Reduce the Trade Deficit (Deals Won't Either)

Mike "Mish" Shedlock

Comments (50)
View Older Messages
Realist
Realist

If she is a free trader, then make her président instead and get rid of that orange buffoon.

Aaaal
Aaaal

Title should read, "...favors a gold standard and free trade, in word only."

jrdunbar1929
jrdunbar1929

Do I remember correctly that Alan Greenspan also had written sound money books and professed the value of gold in monetary systems.....and then he was appointed to the FED. His salary and position both incompatible with a gold standard. (or any other sound money policy) Shortly afterword, became the first(?) in the serial bubble blowers. After retirement, again professed the value of gold.

ksdude
ksdude

How do you back a dollar that's gazillions in debt with gold? Does that mean I could trade a dollar bill for a dumptruck full of gold?

Mish
Mish

Editor

"Priced at the right level it would be hugely inflationary for holders of dollars. Right now an ounce of gold would buy X loaves of bread. If gold were fixed at $10,000 /oz, for example"

STOP

You do not "fix" the price of gold. Rather, $1 represents x ounces of gold, redeemable in gold, on demand.

Gold will buy what it does.

Greggg
Greggg

Gold??? Banks and Corporations would lose their control over the people. If the sheeple only knew.

Sechel
Sechel

Gold standard is simply another way of saying she doesn't agree with the Fed's dal mandate and only wants the Fed to focus on zero inflation or stable pricing. I agree with that. The talk of a gold standard is atavistic.

MattH
MattH

The qualitative valuation of each unit definitely has to be “fixed” in value and not subject to devaluation by monetary authorities. The issue with fixing it to gold (while noble in principle) is that gold is limited in its absolute quantity, and so this will result in the hoarding of money in quick order leading to monetary shortages and deflation (possibly significant deflation / collapse). The real solution is that the qualitative valuation of money needs to be “indexed” to a basket of goods / services so that it’s quantity can be adjusted in line with economic growth / contraction. The point being that the value of money should neither deflate / inflate but stay steady, with the quantity of currency in circulation being variable and as per the needs of the economy. So if significant growth occurred, then the money supply should be able to keep pace without affecting the valuation of each unit of currency.

Blurtman
Blurtman

Tie the dollar to NY Jets Super Bowl trophies for the sake of stability.

Harbour
Harbour

Bitcoin is sure soaring - better investment than gold right now.

Bam_Man
Bam_Man

Try running a 3/4 of a $TRILLION annual trade deficit on a Gold Standard. That's a lot of Gold. Much easier to finance using Uncle Scam's Ponzi IOU's.

bfisher
bfisher

Wait! If we back the dollar with Gold. Is there any other commodity on the planet that is more manipulated than the Gold Price. Whats to stop Banks and other Governments from massively manipulating the price? Wasn't this an issue already during the Nixon Administration?

Wabisabi
Wabisabi

Good luck funding all the wars and military actions the US is involved in with gold 😁

Mish
Mish

Editor

"The whole point of fixing gold at a $ price is to account for the existing money supply."

You cannot fix the price of gold. Period. It does not work. You can have a 100% gold-backed dollar. That is not fixing the price.

It is important to understand the difference and the reason this is so.

everything
everything

Look around the world, gold is for hoarding, since it's a metal, or commodity, the price cannot be fixed. But go Judy, go, I would love an opportunity to get rid of my dusty derelict au/ag physical holdings so I can transfer them into a usable tangible asset instead.

bfisher
bfisher

From what I read it seems that Governments would not be too keen on a Gold or other commodity backed dollars as the constraints on spending can really hurt your economy in times of war or recession. What government would willingly give up its position to print money? In the US we jump from war to war spending Trillions of dollars. I think I will put this discussion in the bucket with term limits and pay cuts on Congress. "It may be the best thing for the people but it will never happen because those in power lose; well, power and influence."