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Bloomberg reports that the White House is considering economist Judy Shelton for the Fed's board of directors
The White House plans to call conservative economist Judy Shelton to fill one of the two vacancies on the US Federal Reserve Board that President Donald Trump has struggled to fill.
She is currently the US Executive Director of the European Bank for Reconstruction and Development and previously worked for the Sound Money Project, which was founded to promote knowledge of monetary stability and financial confidentiality.
Argument in favor of a change of monetary regime
On April 21, Judy Shelton published an article in the Wall Street Journal: The argument for a change in monetary regime.
Since President Trump announced his intention to appoint Herman Cain and Stephen Moore to the Board of Governors of the Federal Reserve, traditional commentators have been striving to return any sympathetic person to a gold standard as being manic or unskilled.
But it is perfectly legitimate and quite prudent to question the infallibility of the Federal Reserve in the adequacy of the money supply to the needs of the economy. No other government institution has had so much influence on the creation of money and credit in the run-up to the catastrophic global crisis of 2008. And the Fed's response to the crisis may have exacerbated the damage by reducing incentives for banks to finance the growth of the private sector.
What began as an urgent decision following the financial crisis of paying interest on excess reserves to commercial banks has become the main mechanism of the Fed for the conduct of monetary policy. To raise interest rates, the Fed raises the rate it pays banks to keep their excess reserves of $ 1.5 trillion – eight times what is required – in bank accounts. district of the Federal Reserve. Rewarding banks that hold excess reserves in sterile deposit accounts with the Fed rather than lending to the public does not help to create business or stimulate job creation.
Meanwhile, despite all the rhetoric about a rules-based international trading system, there are no rules to ensure equal conditions of monetary competition. The classic gold standard has set an international benchmark for monetary values, consistent with the principles of free trade. Today's agreements allow governments to manipulate their currencies to gain an export advantage.
The currency is supposed to be a reliable unit of account and a transboundary store of value and over time. It is quite reasonable to ask whether it would be better to tie the money and credit offer to gold or another benchmark, instead of relying on the judgment of a dozen or so monetary managers meeting eight times a year to set interest rates. A linked system could allow individuals (as in the gold standard) or foreign central banks (as in Bretton Woods) to convert their currencies. In both cases, this could remedy inflationary pressures.
Collapse of money
Judy Shelton is the author of the 1998 Money Meltdown book.
I just ordered the book to get a better idea of where it came from.
Anyway, I am convinced that it would have been a better choice for the Fed chairman than for Powell, Bernanke, Yellen or Greenspan.
Bubbles of increasing amplitude
Shelton concluded "Central bankers and their supporters proved less than omniscient. "
Effectively.
The Fed's judgment produced three consecutive bubbles, each bigger than the one before it. The only reason the last bubble has not been recognized yet is that it has not exploded yet.
What Shelton has in mind is unclear, but at least it is going in the right direction. What is clear is that Trump is fighting the wrong battle in trade.
Tariffs will not solve the alleged problems of monetary manipulation. A gold standard would be.
A flawless stay
For discussion, please see:
- Discuss Trump's "catastrophe" with NAFTA in pictures: what is the real source of trade imbalance?
- Mission impossible: tariffs do not reduce the trade deficit (the transactions will not be either)
Mike "Mish" Shedlock
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