On July 2, 2019, President Trump tweeted, "I am pleased to announce that it is my intention to nominate Judy Shelton, Ph. D., U.S. Executive Dir, European Bank of Reconstruction & Development to be on the board of the Federal Reserve...."
Thankfully, he still hasn't formally nominated her; her mixed-up ideas on how the Fed should operate under government control are as disconcerting as they are dangerous. For instance, Shelton openly supports Trump's pressuring the Fed to keep lowering interest rates.
But you don't have to take my word for it. In her own words, she's laid out in black and white the clear and present danger she, and the Fed in general, pose to America's capitalist democracy.
Tough to believe, I know, but the central planners at the central bank could still get even more out of control than they are already...
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Shelton Is Going All-Out for the Job
Shelton lately looks like she's angling for formal nomination. She penned a Trump-pandering op-ed piece in The Wall Street Journal on Aug. 16, 2019.
The op-ed, titled, "The Fed's Mandate Is up to Congress and the President," starts out, "The role of the Federal Reserve as an instrument of public economic power could use some clarification."
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She's sure right when she says, "the Federal Reserve as an instrument of public economic power could use some clarification." Then again, a busted clock is right twice a day.
But nowhere in her op-ed does she clarify that the instrument of public economic power is a private central bank - whose enumerated powers include owning America's money supply (all of it), manipulating interest rates in what's become a quasi-command-economy, and protecting the "too big to fail" banks it regulates and resuscitates when they implode under their own greed.
After pointing out, "The central bank's status as an independent agency derives from an act of Congress in 1913 and is reinforced by oft-invoked references to its statutory 'dual mandate': to achieve stable prices and full employment," Shelton proposes to educate us as to how changes to the Fed actually gave it a third mandate.
She says, "Congress in 1977... gave the central bank its current, explicit mandate, named three goals rather than two. The legislation as amended states: 'The Board of Governors of the Federal Reserve System and the Federal Open Market Committee shall maintain long run growth of the monetary and credit aggregates commensurate with the economy's long run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.'"
The third "goal" of the Fed is, according to Shelton, "long run growth of the monetary and credit aggregates commensurate with the economy's long run potential to increase production." This makes her case, she believes, for lower rates. That's the president's position, too, by the way.
Of course, Shelton neglects to point to the Fed's fourth mandate, the one it gave itself. I mean the one first referred to in the 1980s as the "Greenspan put," then the "Bernanke put," the "Yellen put," and now the "Powell put." That's when the Fed artificially lowers rates whenever equity markets sell off, like they did last year... until the Fed came through with the "Powell put" back in December.
Who knows? Maybe Shelton wants a spot on the Fed's Board of Governors to fulfill the president's desire for ever-soaring equity markets.
Maybe she'll vote for the Fed put on a perennial basis.
This Would Completely Destroy Fed Independence
To make her case for presidential intervention, Shelton states that The Full Employment and Balanced Growth Act of 1978, also known as the Humphrey-Hawkins Act "imposed on the Fed an obligation to pursue specific economic goals in the best interests of the nation," and "Attainment of these objectives should be facilitated by setting explicit short-term and medium-term economic goals, and by improved coordination among the president, the Congress, and the Board of Governors of the Federal Reserve System."
That makes her case, she thinks, for the president coordinating the Fed - the case against the Fed's nominal independence.
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"The point," Shelton says, "of taking a closer look at these two laws is to recognize that Congress historically hasn't sought to treat the Federal Reserve as a detached lever of economic power. Rather, lawmakers intended to incorporate monetary policy into an overarching effort to achieve 'important national requirements' that improve U.S. economic prospects."
Shelton obviously wants, like the president, lower rates, because she believes it will improve U.S. economic prospects. (Or was it the president's reelection prospects?)
But lower rates in the face of a robust economy, historically low unemployment levels, percolating wage gains, and near-all-time equity highs seems completely contrary to what Shelton advocated for in the aftermath of the Great Recession.
Back then, according to The Wall Street Journal, she argued, "the central bank's low interest rates and asset purchases enriched the wealthy while putting everybody else at risk of a sharp increase in inflation or a new asset bubble."
In a 2014 WSJ opinion article, Shelton wrote, "It is ironic that concern for wage earners serves to justify money pumping by the Fed that ends up largely benefiting people who have hefty stock-market portfolios, especially at a time when 'income inequality' is a major White House theme."
Well, I guess Shelton's concern for wage earners is outweighed these days by the bizarre desire to pump money into markets - and oxygen into the president's reelection prospects.
And speaking of bizarre...
Shelton's Pushing for the Gold Standard Scam
In 2019, Shelton said that she hoped for a new Bretton Woods-style conference where countries would agree to return to the gold standard, saying, "if it takes place at Mar-a-Lago that would be great."
Good grief. Setting aside the blatant flattery, Shelton's idiotic, impossible advocacy of a gold standard is more suited to 1819 than 2019.
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It sounds nice, but a return to the gold standard, whereby the U.S. dollar and other currencies would be tied to the value of an ounce of gold, is mechanically impossible. It would technically restrict the Fed's ability to expand the money supply... which is idiotic in the face of Shelton's own advocacy for "lower for longer," even negative interest rates.
Again, she wrote all this down and published it for everyone to see. In a February 2017 opinion piece in The Wall Street Journal, she said, "When governments manipulate exchange rates to affect currency markets, they undermine the honest efforts of countries that wish to compete fairly in the global marketplace. Supply and demand are distorted by artificial prices conveyed through contrived exchange rates. Businesses fail as legitimately earned profits become currency losses."
So, why is she now arguing for lower U.S. rates? That would lower the dollar's exchange value, which would prompt other countries to lower their rates and currencies - currency wars, in other words.
Shelton wants a hard dollar and a presidential prerogative to work the interest rate lever... which softens the dollar... which is what the president wants for trade.
Those are completely contradictory positions.
So, where does she really stand? What does she stand for, other than hopefully standing for nomination to the Fed's Board of Governors?
No one really knows.
How can our capitalist democracy survive the likes of a politically pandering, mixed-up Fed board governor? How can our economy survive even more debilitating dysfunction?
It can't.
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About the Author
Shah Gilani boasts a financial pedigree unlike any other. He ran his first hedge fund in 1982 from his seat on the floor of the Chicago Board of Options Exchange. When options on the Standard & Poor's 100 began trading on March 11, 1983, Shah worked in "the pit" as a market maker.
The work he did laid the foundation for what would later become the VIX - to this day one of the most widely used indicators worldwide. After leaving Chicago to run the futures and options division of the British banking giant Lloyd's TSB, Shah moved up to Roosevelt & Cross Inc., an old-line New York boutique firm. There he originated and ran a packaged fixed-income trading desk, and established that company's "listed" and OTC trading desks.
Shah founded a second hedge fund in 1999, which he ran until 2003.
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Today, as editor of Hyperdrive Portfolio, Shah presents his legion of subscribers with massive profit opportunities that result from paradigm shifts in the way we work, play, and live.
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