Will President Trump’s Federal Reserve Nominee Bring Change to Monetary Policy?

President Donald Trump formally nominated Judy Shelton to one of the open seats on the Federal Reserve Board on February 10, 2020. Shelton has built a reputation for being an advocate of sound money and has routinely criticized the Fed’s monetary policy.

There are rumors that she could be considered as Fed chief according to certain sources.

Alex Newman of The New American noted that Shelton is known as a “fierce critic of the Fed and its quasi-‘central planning’ schemes.”

She has called for a gold-backed currency and would like to see more competition among private currencies. On a more radical note, she has even raised the question of whether a central bank should exist.

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Unlike many mainstream economists, she recognizes how the Fed manipulates interest rates. During an interview with the Financial Times she unloaded on the Fed.

“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?” she inquired. “The Fed is not omniscient. They don’t know what the right rate should be. How could anyone? If the success of capitalism depends on someone being smart enough to know what the rate should be on everything … we’re doomed. We might as well resurrect Gosplan.” Gosplan was the committee responsible for central planning in the Soviet Union and was instrumental in facilitating the Soviet Union’s economic disaster.

Furthermore, Shelton seems to have an understanding of the Fed’s role in generating repeated economic crises. In a Wall Street Journal piece headlined “The Case for Monetary Regime Change,” Shelton pinned the blame on the Fed for the “devastating 2008 global meltdown” that catalyzed a worldwide economic downturn. In particular, she pointed the finger at the Fed’s “influence over the creation of money and credit.” Shelton has called for “linking the supply of money and credit to gold” in the past to tackle the issue of inflation which the Fed creates through the expansion of the monetary supply.

Ludwig von Mises Institute Vice President Joseph Salerno had positive things to say about Shelton’s nomination, but she still has some reservations. In Salerno’s view, Shelton’s support of the gold standard is a plus.

However, Salerno does not believe she’s the ideal free-market candidate for the Fed. “The bad news is that she leans heavily toward supply-side economics, which is deeply flawed on monetary policy,” contended Salerno. “Like most supply-siders, the position she advocates may be summed up in the motto, ‘I favor sound money — and plenty of it.”

On the gold standard, Salerno called attention to how Shelton seems to be in favor of returning to an updated version of Bretton Woods system that imploded in the late 1960s. President Richard Nixon completely scrapped this system in 1971. The pre-Bretton Woods gold standard featured a system where actual gold circulated and anyone could redeem the bills. “The historical Bretton Woods system had inherent flaws that led to its slow-motion inflationary collapse,” Salerno sustained. “This did not stop supply-siders, including Shelton, in her 1994 book Monetary Meltdown, from penning proposals for an updated version of Bretton Woods.”

Nonetheless, Salerno still believes that Shelton is “among the most politically palatable (at least to Republicans) candidates for the Federal Reserve Board of Governors.” However, Salerno conceded that “this is weak praise, given that the very existence and function of the Fed is a destructive influence on the U.S. and global economy.”

The jury is still out on Shelton. Previous Fed Chairs like Alan Greenspan had free-market backgrounds and later turned into establishment economic actors.

Monetary policy is a crucial issue that must be addressed sooner or later, unless the U.S wants to experience a massive financial collapse.

Hopefully, Shelton lives up to the hype in the case she’s nominated. The Fed truly needs a facelift moving forward

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