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:
- Disputing Trump’s NAFTA “Catastrophe” with Pictures: What’s the True Source of Trade Imbalances?
- Mission Impossible: Tariffs Didn’t Reduce the Trade Deficit (Deals Won’t Either)
Mike “Mish” Shedlock
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.”
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.
“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.
a bitcoin backed dollar….that s what we need ….
Yes. It would only take one or two rogue countries to destabilize a 100% gold-backed dollar. People seem to be forgetting how silver fled the US when the Treasury tried to maintain its historic $1.29/troy oz price while everyone from the Hunt brothers to the Soviet Union were pulling levers behind the scenes.
FDR and Nixon let the horses out of the barn. As much as I’d like to see a return to precious metals, too much has changed.
Good luck funding all the wars and military actions the US is involved in with gold 😁
So what s the alternative ? PRINT , as if there s no tomorrow ?
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?
It would be quite a bit harder to manipulate the gold price, if gold was priced in ounces of gold…..
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.
Bitcoin is sure soaring – better investment than gold right now.
Tie the dollar to NY Jets Super Bowl trophies for the sake of stability.
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.
Gold??? Banks and Corporations would lose their control over the people. If the sheeple only knew.
“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.
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?
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.
Title should read, “…favors a gold standard and free trade, in word only.”
I’m all for Judy Shelton getting in but her stance on monetary policy is anathema to what Trump wants: lower rates and more QE. To me this story makes no sense.
A return to a gold standard would effectively ‘reset’ the system and the pain (for most) would be epic. I can’t see it. Not without a wholesale collapse of the monetary system.
A reset would be painful only if the USA does like the UK after WWI and try and set the standard to the old standard of $35 a troy ounce… otherwise, going to a gold dollar would not be painful necessarily at all.
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, and it still only bought a similar number of loaves, where would that leave the average man in the street? In abject poverty is where. The point is, that the purchasing value of all financial assets (and cash) would drop by the magnitude of the rise in price of gold, more or less.
Yes, but if the gold dollar was priced at exactly the ‘right’ level, then it would be, as you must admit, be neither inflationary nor deflationary. But getting it right might be tough? (or maybe not). BTW a source I have who I’m not sure wants his name in public just emailed me and says that this is “old gold news”…apparently some of Trump’s people are battling against Ms. Shelton and others are for her, but it’s been this way for a while. I hope her faction wins. I personally think money is neutral (meaning inflation doesn’t really matter, more on this some other time) but I hate inflation, even though it’s ‘harmless’ more or less, except for hyperinflation, and want a gold dollar. I’m also long on GLD and physical gold.
The same number of loaves would be produced, for the same number of people eating it. It’s not as if dorking around with money magically causes bakeries to evaporate. Nor wheat to stop growing.
The price of a loaf, would simply settle at an equilibrium price in gold. Just as it did before the theft rackets got going.
As for the average man in the street, curtailing the, increasingly rapaciously exercised, ability of The Fed to rob him for the benefit of deadweight leeches producing nothing of value whatsoever, cannot help but leave him better off. He currently has to work not just to support himself, but also an army of deadweight leeches sitting idly on their rear (at best) while living off of “asset appreciation,” whom The Fed insist on squeezing ever more blood out of him, in order to keep in ever increasing splendor.
There is simply not even a theoretically possible way, that having people randomly counterfeiting dollars, instead producing something in return for them, is of any economic benefit whatsoever. None of that changes just by rebranding “counterfeiter” to “The Fed.”
I think you misunderstood what I said. I was simply making the point that if you suddenly imposed a gold standard and fixed the price of an ounce of gold 10x higher than today’s market price (not unreasonable) that market prices of other goods wouldn’t simply remain as they were. A re-pricing of gold of that magnitude lifts the lid on the true level of inflation and prices will respond accordingly.
I don’t disagree that the man in the street will (eventually) be better off but any holders of cash or financial assets will get hosed and the economy, in the short-term at least would be in turmoil. I am a strong supporter of a gold standard but a gold standard would crush those whose wealth was tied up in assets other than monetary metals, solid businesses and good farm land.
Fix it at $20/oz (Or $750/kilo to make it easier fro the rest of the world).
That’s about where it was when America still retained trappings of a free country. Any deviation from that, is solely representative of the gargantuan experiment in unconstrained theft, from most Americans to a bunch of expendable leeches, which has taken place since those trappings of freedom were thrown by the wayside in America’s quest to degenerate into nothing more than a dystopian, progressive dump.
While bringing back the dollar as it was when American was free, won’t fully reverse all the atrocities which has been enabled by the debasement, it will at least go some ways towards righting all the wrongs.
“If gold were fixed at $10,000 /oz, for example, and it still only bought a similar number of loaves, where would that leave the average man in the street?”
If gold were fixed at $10k, everyone having an ounce of gold would suddenly have $10k instead of $1300. That would represent an immediate increase in the money supply which would be followed by more increases as miners would go into overtime to dig up more dollars. A big increase in the money supply would be highly stimulating. Not exactly ‘painful’ except to bond holders as the prices of goods would climb.
No it wouldn’t represent a big increase in the MS. It would simply be a more accurate representation of the relative values of both gold and dollars. The significance of a revaluation would be to cause sellers of real goods to question the value of paper dollars and the consequent effect on prices from that point. The point I’m trying to make is that once gold were fixed at a higher level holders of gold wouldn’t necessarily be ‘rich’ – it would all depend on what happened to the purchasing power of dollars. If the PP of dollars were unaffected, then sure, it would represent a windfall but a more likely scenario is that prices of real goods would rise sharply and tend toward their original relationship with gold.
Mine supply would not increase materially (not in the short term) although exploration budgets would certainly do so. The low hanging fruit in the gold mining biz has largely been picked and new meaningful deposits are increasingly rare. Mine supply currently adds around 1.5% to global gold stocks every year and more likely to decrease.
I stand by what I said.
Returning to a gold standard at $10k an ounce would cause an immediate increase in the money supply as gold not in the Federal Reserve would instantly become money. That’s a mathematical certainty.
And certainly miners would treat any increase in the price of gold as a reason to increase gold mining. Many mines are closed or partially closed now because the current price makes it unprofitable to mine gold.
I don’t mean to be rude but I don’t think you understand how this works. The whole point of fixing gold at a $ price is to account for the existing money supply. Absent any increase in gold reserves there’d be no way for governments to increase the paper money supply — at least, not without risking a run on gold reserves. Gold held privately doesn’t suddenly increase the money supply — unless you think that private entities can issue their own currency.
“The whole point of fixing gold at a $ price is to account for the existing money supply.”
Yes. But the market price of gold is much lower than $10,000. Moreover, gold bullion is not money now; just another commodity. If it becomes money, as in a gold standard, there’s a lot of it that would become money – $10,000 for each ounce. That includes gold in foreign countries. That is a huge increase in dollars around the world.
“Absent any increase in gold reserves there’d be no way for governments to increase the paper money supply”
Ah, but there would be an increase in gold reserves. A gold standard not only means the dollar is convertible into gold but also that gold is freely convertible into legal tender because it is money. People holding gold would have no longer have reason to hold it as its price would no longer have any real likelihood of going up. So they would deposit it for newly minted gold coins or certificates in the form of paper money.
A ‘run on gold reserves’ would only occur if the price were set too low.
And why would you assume the Price of Gold would be FIXED…
We had a good working gold standard until FDR screwed things up by fixing the price of gold and then confiscating it from private individuals….
That’s how a gold standard works. If you don’t fix the price then the Govt is free to create all the funny money they want. We have a floating exchange rate system right now and, of course, the price of gold fluctuates accordingly. At the turn of the century you could by yourself an oz of gold for just over 200 bucks. Now the same amount of gold costs 1280 bucks – an indication of a large scale money supply increase. Many would argue (including me) that the current price of gold is cheap relative to the money supply increase over the past 20 yrs: cheaper on a relative basis than it was in the yr 2000.
“And why would you assume the Price of Gold would be FIXED”
Of course it’s fixed under a true gold standard. Gold becomes money and the ‘dollar’ becomes a fixed unit amount of gold such as 1/20 or 1/35 or 1/10,000 of an ounce, meaning that the gold price is fixed at $20, $35 or $10,000 an ounce.
A gold standard would make US dollars more valuable, and the FED less. Existing debt denominated in USD and currency not backed by gold or oil could get obliterated. Switching the US to a gold standard might be a shot at China or the EU.
The chances of a voluntary return to a gold standard are about zero. If it happens it will do so as a result of a catastrophic failure of the existing system. Vlad (The Impaler) Putin seems to me to be a pretty savvy guy and it comes as no surprise that Russia is furiously accumulating gold. Perhaps he senses something on the wind 😉
Using gold as a basis for your currency is like advocating steam engines for energy … except at least steam engines did some good in the 19th Century.
That you, Ben?
Steam engines work, they are quite efficient, used all the time in power plants even today, as they retain a lot of heat, better than an ICE for power generation… And under a gold standard the USA had good growth, see the works by noted economist George Selgin, a “gold bug” (though he also believes in paper money)
Steam engines are not efficient. That’s why they do not power ships anymore.
I think steam engines are used for nuclear power…So….
Yeah, try putting a steam engine in a plane and let me know how that works out for you. Nobody said steam engines don’t work, it is just that there are much better technologies that deliver what the steam engine can’t. If you want to base your economy on gold, then you fall into the same class that want to convert the World’s largest economy to MMT – let’s see it work on smaller experimental situations first before we go 150 years backwards in financial technology.
Its wrong analogy, just the opposite, the gold standard brings stability and economic growth, no bubbles.
Every power plant in the world is driven by steam.
And the analogy of comparing gold to a steam engine make no sense.
BITCOIN ….is the future , innit ? It will save our asses when the debt bloated ponzi scheme house of cards eventually collapses, wonnit ? LOL!
It was constructive to me because I just bought so more silver.