Thursday, June 20, 2019

Does Judy Shelton Really Want the Fed to Push Interest Rates to Zero AND a Gold Standard?

Judy Shelton
By Robert Wenzel

Some from the Cato crowd are trying to bail out possible Trump nominee to the Federal Reserve Judy Shelton after she made unclear remarks to Washington Post reporter Heather Long.

In comments to the Post, Shelton made statements which give the impression that she is in favor of lowering interest rates to near zero.

The Cato crowd is trying to spin the idea that she was only talking about interest rates on excess reserves:
But Heather Long is sticking to her original reporting:
Long is very likely correct here. Shelton has a history of commenting in a manner that is not clear, where she uses concepts in a manner not consistent with the general way they are thought of

Consider this remarkable exchange between Business Insider reporter Gina Heeb and Shelton about the gold standard.

Heeb puts in a strong effort to get a straight answer out of Shelton about the gold standard. In the end, Heeb draws out that either Shelton doesn't understand what the gold standard is or she doesn't want to talk about it:
Heeb: You support the gold standard, but I haven't seen a lot of details about how it would be implemented.
Shelton: First of all, whenever you see that, please, please try to figure out what do people mean when they attribute that to me. Do they mean a gold standard where… We only have 261 million ounces, so I don't understand. Do people really think that I'm saying that somehow about 300 or 350 billion or so - I'd have to calculate it out -- but not a big chunk. Is that what they're talking about or are they talking about where during like the classical international standard? I mean the government didn't stand ready to convert. All they did is look at what Thomas Jefferson wrote on the establishment of a money unit. The United States you just declare, what is your measurement? What do we call the US dollar? He did it as so many grains of silver or so many grains of gold. And you just define it. Bretton Woods was something completely different where only a foreign central bank had the right to convert dollars into gold.
I'm not sure what people mean when they attribute that to me or what they think I'm suggesting. What I said is that it's a good way to look at the virtues of what you want your monetary system to provide, in terms of a monetary integrity or price signal clarity or international system of sorts that sovereign countries can voluntarily agree to abide by. What do you want and do you have a universal reference or benchmark? So that other countries could voluntarily agree to abide by certain rules on currency relationships. It doesn't have to be gold. Gold is the cliche. But if someone wants to suggest something different, I've heard people say sand or water or oil. I just haven't seen anything better than gold.
After that odd Shelton response, Heeb circles back to try to pin Shelton down in terms of the common understanding of the gold standard.
Heeb: You're not in favor of pegging a currency to the price of gold?
But Shelton is having none of it and goes off on another circular dance  including a discussion of a price rule, which is a major stretch to introduce when one is discussing the gold standard:
Shelton: When you say pegging, what do you mean by that? What are you asking me?
Heeb: When a currency is defined in terms of -
Shelton: I'm sure I've never said that the Fed should have a price rule to ratchet up or down interest rates in accordance with the daily price of gold. But I'm sure that if anything I would have said a price rule I don't think is a good idea. I've never suggested that. I'm not badmouthing the gold standard. I'm saying look to see what you like about prior systems that have worked and see if we could develop a future system that would incorporate the virtues of things that worked in the past.
Heeb tries a third time:
Heeb: But you haven't favored a system in which the value of a currency is defined in terms of the price of gold?
Shelton: I'm just saying that it's way too easy to toss out the term. When the government overspends you could say, oh we should just have a gold standard. Because then you have some discipline because then there's kind of a fiscal price to pay. You could lose gold and then that shrinks your money supply and then that puts the brakes on if you're overinflating or whatever you're doing wrong. I mean there's lots of aspects to it, but you really have to be careful about what you mean to just say, oh, you favor the gold standard.
I would just say if you're talking about the classical International gold standard like Alan Greenspan, like Robert Mundell, the Nobel Prize winner, I recognize the virtues of when we had an international voluntary currency system that honored the sovereignty of countries and that was based on their own self-discipline and not say like we have problems with the euro because if one country kind of blows it - whether it's Greece or Italy or Portugal - it doesn't threaten the whole system. Those are those are things we should be talking about.
 This strikes me as very likely the kind of dancing around she did with Long. It's almost as though she has a lot of the terminology down but doesn't quite know how it all fits together or doesn't want to fit it together properly.

Robert Wenzel is Editor & Publisher of and Target Liberty. He also writes EPJ Daily Alert and is author of The Fed Flunks: My Speech at the New York Federal Reserve Bank and most recently Foundations of Private Property Society Theory: Anarchism for the Civilized Person Follow him on twitter:@wenzeleconomics and on LinkedIn. His youtube series is here: Robert Wenzel Talks Economics. More about Wenzel here.


  1. You don't give me enough credit, Bob. The truly impressive thing about my effort to "bail out possible Trump nominee to the Federal Reserve Judy Shelton *after* she made unclear remarks to Washington Post reporter Heather Long" is the fact that I managed to do it more than a week *before* Long's article came out. I guess I knew what Shelton was planning to say before she actually said it!

    1. You are a visionary like no other. I told you Trump should nominate you for a Fed Board seat.

  2. I still say it a typical Washington Post hit piece. Its writers cannot write any differently. The quotes Long references in her tweet are actually not clearly set out in the article as being in reference to the "benchmark" rate. She is not even putting words in Shelton's mouth. Of course, Shelton should now put her position in writing and just make reference to the writing. I don't do tweet, but has she commented on the story?

    1. Hi Jule,

      How do you explain her garbled discussion of the gold standard?

    2. Most discussions of the "Money Question" are garbled. See, for example, the talking past one another of Salerno and Meiselman at what was Cato's first monetary policy conference.

      I suspect that Sheldon is more or less in the Meiselman camp and cannot understand that the underlying question is not really about money, but politics. The real question is "The Banking Question" and the legal privileges extended to a few under a central banking regime. As Hayek put it, the state has frozen and stopped the evolution of money, so the solution of what is Good Money has never been allowed to take place.