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.
- The dollar is 100% gold back.Banks cannot lend money into existence.
- There is no fractional reserve lending nor MMT madness.
- 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
Release the Kraken!
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.
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.
That, and to collect, and price, all taxes and other official levies in Gold. The need to pay Leviathan or be beheaded, pretty much ends up driving what people want to hold, in order to avoid currency risk. At least in countries as large and diverse as the US. Smaller country residents need to pay Leviathan, as well as buy oil. Hence splitting their holdings between what the taxman accepts, and dollars.
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.
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.
I cannot get a grip on Judy’s views — they just don’t seem to add up or make any sense.
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.
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.
You should be able to lend as many claims to your deposits as you fancy. Actual deposits are obviously self limiting, as they are made up of non-reproducible Gold. If you know your market well enough, temporary writing more claims than you have cover for, does not necessarily need to end in calamity. Then, if you misread, or overdid, things, banks runs will keep you, and depositors, honest. Ensuring that things won’t get systemically out of hand.
If even the first penny of writing uncovered claims immediately caused Armageddon, fractional reserving wouldn’t have gotten off the ground in the first place. Yet it did. Even before central banks. Some depositors are, or may be, willing to take a small risk; in exchange for not having to pay a storage fee for their specie. Each bank can hence work out contracts with their depositors regarding how far away from 100% fully-reserved-all-the-time they are allowed to go. As long as both parties agree, no economic harm is done; as there are no bleedover to third parties.
The thing is, this only works for hard specie. Since banks simply cannot lend more of it than what they have on hand. So the only way they can fractionally reserve, is by issuing claims. Not lending actual “money.” Hence, anyone who don’t trust “Bank of X,” can simply refuse to accept claims on their gold stock as a perfect substitute for specie itself. How trustworthy a bank’s issued claims are, will then be reflected in the discount its claims will trade at, compared to specie itself.
The important thing being, there’s no need to ban any of it. It’s entirely self regulating, as long as there is no Central Bank able to issue more “specie”, in order to provide “liquidity”, or whatever other nonsense is popular with the moronocracy and its indoctrinati these days. Gold is self reinforcing, as it simply cannot be printed up. Hence, the buck literally stops with the gold on deposit at any claims issuing institution. Preventing misjudgements, or fraud, at any one institution from spreading to third parties making up the broader economy.
As for “fraud,” that is only applicable if the depository institution misrepresents what it is doing with deposits. If it tells depositors it is sticking the gold in a vault, but is then turning around and lending it out, that’s fraud. But if it instead sells depositors on cutting them in, by way of interest, or freedom from storage fees, in exchange for being allowed to fractionally reserve, there’s no fraud is committed.
Is there even an example of a functioning economy that doesn’t have fractional reserve lending? I’m not aware of any. Can banks, and lending exist at all, or does the economy just function on a cash-only basis?
I suspect the sheer size, power and intrusiveness of a legal and enforcement system powerful enough to prevent all and any fractional reserving, would to such an extent stifle banking, that any such society would indeed be cash only and bank free.
There has definitely been lending in cash only societies. Just not the third party, impersonal lending aggregation of the kind banks perform. Three guys with some gold, can still lend directly to a fourth guy building a grainmill. But as soon as those three instead hand the money to a fifth guy with enough trust that people accept claims to his stored holdings at face value, he has an incentive to write a few more claims than he has specie in his vaults. And preventing him from doing so, requires pretty much constant, official, public audits. Performed by those mythical creatures called public servants not at all corruptible.
Hard specie gets around the issue entirely, though. The problems with fractional reserving only surfaces once you introduce a privileged actor able to freely create more “specie” at his arbitrary discretion. To “save the syyyystem.” or whatever else misguided saps are being suckered into believing is some sort of positive undertaking. That’s when things go straight to hell, inevitably and without fail every single time. In any possible universe.
“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, 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?
Sounds like a nutcase to me. I think reducing government deficits would do more to restore normalcy than anything else.
She is only half crazy. All the others (Braindead, Bulltard, Klamydia, Cash-N-Carry, etc.) are 100% batsheet crazy.
Exactly, KidHorn. The deficit is the elephant in the room that no one ever seems to notice. Get rid of the deficits, and the Fed has nothing to do. With the deficits, the Fed has to go through all sorts of machinations to keep the economy functioning.
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.
Not to mention the fact that the rate of interest should be set by the market. Central bankers have proven over and over again that they have no clue what the correct rate of interest should be
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.
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.