Long a Critic of the Fed, if Confirmed Will Tilt Board Makeup

Economist Judy Shelton is being considered by President Trump for nomination to be on the Board at the Federal Reserve. She is a firebrand supporter of free trade and the gold standard. This bothers the usual suspects. They value the status quo even if it means the US economy suffers, like what started in 2008. She is an executive representing America at the European Bank for Reconstruction and Development.

She previously worked with something called the Sound Money Project (red alert, fiat currency advocates!). Her article for the WSJ (readers note – paywall) gives a fair argument for a more stable money system. This has traditional, “loan out all you want, we’ll print more” economists in an uproar. They still cling to the belief that the economy can be controlled by the magic lever of rate changes. When that fails, they buy up government-owned Treasury bonds and enact “Quantitative Easing”, i.e. print more money for loaning out.

That policy didn’t do a lot for most last time we had a deep recession. Though of course well-off banks and financiers did fine, as they always do. If America went back to a gold standard our economy would become more stable. Even a mixed rare-commodities one would accomplish that.

Currently the Dollar is what is known as Fiat money, based on nothing but the belief that it has value. Specifically, the “full faith and credit of the United States”. In this way it is almost religious literature. The full faith and credit part now means faith that our military will protect our interests, so there is that.

If you are part of a group of money-heretics that question this though, you are labeled a kook. Or at least old-fashioned, as all official money is this way now. Exception being crypto, but that is not official, and has drawbacks as well. Economists like fiat, as they can more easily manipulate it to desired conditions.

Many nations in oil rich areas of the world peg their currency on the Petro-Dollar. This allows them to have a semblance of stability. Others even that are not especially rich in oil use Dollars. This has resulted in a regional foreign demand for US currency. Libya was going to set it’s money to a gold standard. Hillary and Obama took out Khadaffi before that could happen. Coincidence.

Trump Also is Looking at an Insider for Nomination

In addition to Shelton, he seems to be leaning towards Christopher Waller. He is a Research Director at the Federal Reserve Bank of St. Louis. This would appear to balance out the selection of Shelton on the Fed Board. Multiple points of view may be what the entity needs to function better. Interestingly, the Federal Reserve is neither. It is not really Federal (it is a group of private banks) nor a Reserve of anything. Since we left money with precious metal backing in 1973 anyway. That discussion is worthy of another entire article, others have used it as the premise of entire books.

Waller is mainly an academic, he advocates central bank independence as a stabilizing tenet to insulate monetary policy from politics. Even Trump’s “insider” sometimes disagrees with the rest of them, that is comforting. The Fed Board holds only seven of twelve votes for the Federal Open Market Committee. This is what sets monetary policy and regulates bank and consumer credit policies.

The other Committee members are four rotating presidents of the 11 private Federal Reserve Banks. It’s an excessively complex system with questionable oversight. It might be better for the country if it had some, or as some advocate, ending it altogether. For the time being, reigning it in may be all that can be done.