Trump Fed Nominee Judy Shelton Says "Yes" to 0% Interest Rates and "Yes" to Gold

-edited

In the race to zero and below, the Fed is way behind. Judy Shelton hopes to get there in one or two years.

Shelton Says Yes to Zero

Return to Gold Standard

In addition to wanting 0% rates, Shelton seeks a return to the gold standard and has written that central banks ‘are the world’s biggest currency manipulators’

Her Own Words

Please consider Judy Shelton in Her Own Words.

Monetary Policy

Ms. Shelton argues that central banks’ interest-rate moves cause economic disruptions by manipulating currencies in ways that affect global trade.

Curiously, she must think that 0% rates do not cause economic disruptions.

When asked in a recent interview with the Journal’s opinion page whether the Fed should cut interest rates now, she said, “The answer is yes,” a view that aligns with Mr. Trump’s recent public comments. She said, “When you have an economy primed to grow because of reduced taxes, less regulation, dynamic energy and trade reforms, you want to ensure maximum access to capital.

Monetary Stimulus

Ms. Shelton opposed the Fed’s efforts to stimulate the economy in the aftermath of the recession, arguing that the central bank’s low interest rates and asset purchases enriched the wealthy while putting everybody else at risk of a sharp increase in inflation or a new asset bubble. “It is ironic that concern for wage earners serves to justify money pumping by the Fed that ends up largely benefiting people who have hefty stock-market portfolios, especially at a time when “income inequality” is a major White House theme,” she wrote in a 2014 Journal opinion article published after then-Fed Chairwoman Janet Yellen had addressed Congress. “Perhaps one of our elected representatives on Capitol Hill can explain to Ms. Yellen that when the low-grade fever of perpetual inflation becomes a full-blown economic malady—when the next financial bubble bursts with horrible consequences for the real economy—average Americans will pay the biggest price.”

Once again this is peculiar because 0% interest rates also cause bubbles.

The Gold Standard

Ms. Shelton has repeatedly called for a return to the gold standard, a monetary regime that pegged the value of the dollar to the value of gold. That would make it impossible for the Fed to affect the strength of the dollar through monetary policy, she writes. “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.

Sorry Judy. You cannot peg the dollar to the price of gold. It does not work.

You can however, make the dollar redeemable in a fixed amount of gold as long as these conditions hold.

  1. The dollar is 100% gold back.Banks cannot lend money into existence.
  2. There is no fractional reserve lending nor MMT madness.
  3. Banks cannot lend money for terms that exceed deposit rights (e.g. Issuing a 2-Year CD and making a loan for 10 years)

The Dollar

Ms. Shelton favors a hard dollar, by which she means one whose value doesn’t fluctuate depending on monetary policy.

Sorry Judy, this is also impossible as stated. The three conditions above again apply.

Think Back to Nixon

For those who do not understand why you cannot peg the dollar to the price of gold, think back to Nixon.

He ended convertibility of dollars to gold because the Bretton Woods agreement pegging an ounce of gold at $35 blew sky high in a mass flight of gold to France.

You cannot have a fixed price of gold with budget deficits and monetary printing out the wazoo.

You can, under strict conditions noted above, allow a dollar to represent a fixed amount of gold. That's the correct way.

The dollar will then buy what it does. Yes, it will be very stable.

Convoluted Thinking

Shelton has clearly convoluted thinking, but arguably she is no worse than anyone else on the Fed.

I welcome the choice if for no other reason than to get gold back into discussion.

Mike "Mish" Shedlock

Comments (28)
No. 1-18
Stuki
Stuki

You don't have to ban fractional reserves. Nor even be aware of whether it occurs or not, as being so aware is no legitimate government's business anyway.

Just ensure all official payments are made in nothing but hard bullion, get rid of any "Central Bank" and other asymmetrically privileged actors, and let free people sort the rest out among themselves. If someone fancies the convenience of accepting IOU's from a potentially fractionally reserving bank, they can have at it. If it works out well, fine. Otherwise, that's fine as well. Just remove all possibly conduits by which those who gambled and lost, could even theoretically drag third parties into it.

Stuki
Stuki

Neither do you have to bother with which terms banks lend on. Just keep third parties out of it, and let those who fancies hanging themselves do so without intervention.

Once you start dragging government into all manners of nonsensical areas they have no business even being aware of, all you end up with, is more Newspeakian attempts at "yes but, but this dimwitted derivative is somehow OK per the rules...... But yet you still end up with duration mismatches." IOW, you end up with a lobbyocracy.

Instead, just don't get in the way, ever, specifically by avoiding having any institution with the ability to possibly getting in the way; when people make arrangements that lead to their kids starving to death in the streets. Then, sit back and watch, as people suddenly "magically" figure out a way to not leave their children starving.

Sechel
Sechel

Money should cost something. Businesses need a riskless rate of return to base capital market decision making lest we get mal-investment. Savers should be permitted to get a market rate of return, free of Fed intervention and one that hopefully earns them a positive real rate of return. Fed policy time and time again uses savers to subsidize and bail out the economy , a constant source of wealth transference.

The only parties that benefit from distortive Fed policy of zero rates are those with primary access to money such as banks and companies that issue their own debt in the capital markets like IBM , GE & Exxon

Matt3
Matt3

I agree with getting back to a discussion with respect to gold. Sounds like she is only half crazy. I still think that that 0% and lower is insane. It punishes savers and promotes bubbles. I would say it is unsustainable but It appears that it can last a long time (Japan, EU). How long can the monetary policies last? I have no idea.

KidHorn
KidHorn

Sounds like a nutcase to me. I think reducing government deficits would do more to restore normalcy than anything else.

Dazed and Confused
Dazed and Confused

Mish, I appreciate your comments. While pegging the dollar, or any other fiat currency to gold at $1400 will not work, would it work if gold were $10,000, $20,000 or even $50, 000 / ounce?

Snow_Dog
Snow_Dog

Janet Yellen put in a couple of hikes, that’s all I’m saying.

Even saying just that much is going to seem ironic (and possibly amazing) given where we are heading with all of this.

Sechel
Sechel

hmm so is she nominated because of her position on gold or willingness to vote fed positions to get trump what he wants?

RonJ
RonJ

"Coffee. It picks you up and calms you down."

Something about gold and ZIRP makes me think about that coffee promoter ad. Bernanke was asked why the FED continued to hold gold. He responded, "tradition."

It is all phony baloney.

I read that Greenspan was a gold bug- until he became chairman of the FED- and after leaving the FED, became a gold bug again. ON-OFF-ON, like a light switch.

In 2005, Greenspan praised the bankers for getting people into homes they otherwise could not afford- knowing that there was massive mortgage fraud, as the FBI had warned congress in September 2004.

It is all phony baloney.

Mish
Mish

Editor

Stuki - You are just plain wrong. If you have 1 million in gold deposits should you be allowed to lend 25 million of it? Of course not - it is fraud.

This is no more "government interference" than it is to ban theft. or car hijackings. One legitimate role of government is to enforce property rights.

AWC
AWC

Oh, now I get it,,,,gold backed MMT. My funny money will be pegged to gold, and I’ll loan that “gold” out at the reward free return of zirp? All is possible in MMTville. All we have to do is “Believe.”

That magic aside, when are we going to see a big fat tariff slapped on Au and Ag?

Taken one more step, when the dollar is pegged to gold, private ownership of gold will be banned. Gresham’s Law considered.

Runner Dan
Runner Dan

The advertising of a Fed official disclosing a desire for the gold standard is nothing more than a prostitute (the Fed) talking about becoming chase. It ain’t gonna happen, but might make one hopeful for a moment.

Webej
Webej

I cannot get a grip on Judy's views -- they just don't seem to add up or make any sense.

hardmoney
hardmoney

All roads lead back to the fiat money system: Broken countries. Broken trade. Broken bond markets. Broken manufacturing. Broken businesses. Broken housing markets. Broken people. Mal-investments. Wealth inequality. Big Government. Mass immigration. Wars. Even climate change. End the FED. End the ECB. End the BOJ. End the PBOC. End the BOE. End the SNB. End the RBA Bring back The Classical Gold Standard.

Escierto
Escierto

Trump has nominated a bunch of people but none of them get confirmed. She sounds like a nut case who wants both a gold standard and 0% interest rates.

bradw2k
bradw2k

First step with respect to gold is not to try to officially connect it to dollars, but to make it fully legal to use gold as money. Those who try anything of the sort these days have to do a lot of tip-toeing around the regulatory state.

Cforbes
Cforbes

How about money that is based on precious metals, energy and food? A gram of gold, an ounce of silver, a barrel of oil, a cubic meter of gas, a pound of meat and a bushel of wheat. A $1000 would be exchangeable for these three categories or some similar combination. Tying the dollar to just gold is more volatile so using three categories would smooth things out. It would be like a unit of a mutual fund.

Blurtman
Blurtman

Release the Kraken!