Judy Shelton, a Goldbug Who Bends to Fit Trump - Greg Ip, WSJ columnist
Ever since the world left the gold standard, a die-hard band of goldbugs has demanded the U.S. return. President Trump just said he intends to nominate one of them, Judy Shelton, to be a Federal Reserve governor.
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The problem is with how Ms. Shelton makes her case. She has attacked the current system for things it hasn’t done, such as creating inflation, and credited the gold standard for things it doesn’t do, like taking control of interest rates away from central bankers. She has shifted her policy advice with the political winds. That may help her candidacy but diminish her credibility inside the Fed, which prides itself on political independence.
There is no single “gold standard.” Early sovereigns minted coins in gold and silver. Prior to the creation of the Federal Reserve, private American banks issued currency convertible on demand to gold or silver. After the Fed came into existence, it too guaranteed the convertibility of its notes to gold. The U.S. left the gold standard in 1933 but returned in modified form under the Bretton Woods Agreement from 1944 to 1971, which fixed the dollar to gold and other currencies to the dollar. Only central banks, not private citizens, could convert dollars to gold.
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Goldbugs also claim the gold standard takes away politicians’ and unelected central bankers’ control of interest rates, which they consider antithetical to free markets. “How can a dozen, slightly less than a dozen, people meeting eight times a year, decide what the cost of capital should be versus some kind of organically, market supply determined rate?” Ms. Shelton told the Financial Times this year. But it is a myth to claim the gold standard obviated discretion. Someone had to decide which metals would back the currency, and at what price, and how much gold had to be kept in reserve per unit of currency (the gold-cover ratio).
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When Mr. Obama was president, Ms. Shelton complained the Fed was financing his deficits, impoverishing savers and devaluing the dollar to help exports: “That’s not competing. It’s cheating.” She railed against loose monetary policy even as the price of gold fell from more than $1,700 per ounce in late 2012 to below $1,200 in late 2016. That, most goldbugs would say, means monetary policy was too tight, not too loose. Now that Mr. Trump is president, her views have shifted. Having accused the Fed, under Mr. Obama, “of catering to the political class,” she now says it should support Mr. Trump’s agenda by cutting interest rates to “ensure maximum access to capital.” She says the Fed should stop paying banks interest on their reserves at the Fed which, via arbitrage, would drive savers’ returns on money-market funds and bank deposits to zero. Mr. Obama never called on the Fed to target a weaker dollar (as Ms. Shelton intimated); Mr. Trump has done so, repeatedly. Yet Ms. Shelton has applauded, and says it is other central banks that are cheating by easing monetary policy.
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The Fed could benefit from fresh, alternative thinking that is rigorously argued, grounded in evidence and free of political bias. Based on her public comments, it isn’t clear Ms. Shelton is the one to offer it.
https://www.wsj.com/articles/judy-shelton-a-goldbug-who-bends-to-fit-trump-11562242148 (paid subscription)
