Wednesday, June 19, 2019

Sound Money Advocates Should Be Very Concerned If Trump Nominates Judy Shelton for a Federal Reserve Spot

Judy Shelton
By Robert Wenzel

Judy Shelton has discussed a potential role on the Federal Reserve Board with the White House and has begun the paperwork, she said, but she has not been formally nominated or mentioned by Trump, reports The Washington Post.

She has occasionally said positive things about gold but sound money advocates shouldn't think she is a hard money advocate. Her monetary policy thinking appears schizophrenic.

She is a gold supporter (?) that wants to take interest rates down to zero!

I am not making this up.

Heather Long at The Washington Post writes:
“I would lower rates as fast, as efficiently, as expeditiously as possible,” Shelton said in an interview this week in the lobby of Trump International Hotel in Washington. She suggested a “glide path” of “maybe one to two years” to take interest rates from their current level of 2.35 percent back down to zero.
This is monetary madness.

And it is founded on a kookie view of interest on excess reserves as the super-evil. IOER, introduced by Ben Bernanke, is certainly nothing to cheer but it is only a tool of the Fed. She sees it as evil because it provides interest to banks for just keeping money at the Fed. She wants the money in the system. That is she wants an explosion in money supply and accompanying capital-consumption structure distortions. She also claims that she would drain some of the new funds entering the system.

In other words, with IOER there is no problem of funds flooding the system but she wants to eliminate IOER which will flood the system with funds and cause a crisis which she then wants to solve by draining the reserves that cause the crisis!

She admits she holds this policy thinking that would bring interest rates to zero and cause the crisis.

From Long:
Shelton’s main reason for wanting to reduce interest rates is more technical than Trump’s. She believes the Fed should stop paying interest on the “excess reserves” that banks like JPMorgan Chase and Bank of America hold at the Fed. This practice started during the financial crisis and has become the main way that the Fed now affects the economy, but Shelton thinks it’s time to end it.
“Because I’m so against paying interest on excess reserves, in a way, I’m radically in favor of eliminating 235 basis points [on interest rates],” Shelton said.
But, hey, at the same time she claims she is for sound money. Long again:
 But her beliefs about the Fed are outside the mainstream. She has long preached that the United States needs “sound money” and should consider returning to the gold standard. She has gone as far as to call for global leaders to meet at Trump’s Mar-a-Lago resort to hammer out a new monetary system so countries like China can’t manipulate their currencies.
Please pass the lurasidone.

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 comment:

  1. I am not sure I follow your reasoning. At most Shelton is equivocating -- claiming to favor low interest rates when she probably prefers market-driven rates. If, under free banking, each bank issuing demand notes (fiduciary media) kept its own reserves at the level it thought most prudent, those reserves would earn no interest. That would not mean that markets would not set interest rates on loanable funds. Plus the Post article and headline are both typical MSM bs.