In 2017 Judy Shelton said she "loved" being chairman of the Federal Reserve, but realized it was unlikely because she was "somehow tagged with this idea of gold bugs." Three years later, that idea of the gold bug hinders her nomination not for the chair, but for the seven-member Fed Board of Governors.
On Tuesday, the Senate voted to block Shelton's nomination by a margin of 47:50. It could be brought back to the ground, although it is unclear whether that will happen. While President Donald Trump may have thought his former campaign advisor would be a good fit for the central bank, it found that at least three Republicans had reservations about Shelton. This and a Covid-19 fear that quarantined two more GOP senators this week condemned the hastily planned vote.
Trump has named Shelton, who advised his campaign in 2016 and most recently served as director of the European Bank for Reconstruction and Development in the US, as one of two vacancies on the Fed's Board of Directors. The Senate Banking Committee approved her nomination by a narrow margin in July, alongside that of Christopher Waller of the Federal Reserve Bank in St. Louis. While Waller is a pretty traditional choice, Shelton isn't – in fact, until recently, it was basically considered a no-go to get a full Senate vote.
Shelton has a long history of advocating some fairly unorthodox views, including the US's return to the gold standard, a theory that is inconsistent with mainstream economics. She was a heavy critic of the Fed during the Obama years for keeping interest rates low, but under Trump she changed her mind to align with the president. In 2019, she made it a habit to give interviews at the Trump International Hotel in Washington, DC – not exactly a sign of independence.
"Her views seem to have changed, either to get a Trump nomination or because she was nominated by Trump, but it's a little hard to know," said Sarah Binder, senior fellow in governance studies at the Brookings Institution and Professor of Political Science at George Washington University. "The question is, which Judy Shelton would be at the Fed?"
Of course, Shelton would only be one of seven members of the Fed's Board of Governors and one of twelve members of the Federal Open Market Committee (FOMC), which is responsible for rate setting. And if she can't convince her colleagues to go on board with her, it's unclear how much power she would actually have. There was speculation that if Trump won a second term, Trump might try to nominate her as Fed chair, but he lost.
Even so, many experts, economists, and politicians say her presence is worrying even when she isn't running the show.
"We clearly need different voices at the Fed," said Natasha Sarin, assistant professor of law and finance at the University of Pennsylvania. "(But) that kind of diversity is just a variety of bad and ill-informed economic thoughts that are not going to be valuable in any real or meaningful way, and frankly just dangerous, mostly dangerous to the legitimacy of the Fed."
What's wrong with Judy Shelton and the gold standard?
Shelton, 66, has been an integral part of conservative politics and business for quite a while, which means many of the things she wrote, said, and did are now being challenged. That was part of the problem with her nomination.
Many of Shelton's critics have focused on her longstanding advocacy for the US to go back to the gold standard or something like that. This policy would mean that the value of the dollar would be pegged to a fixed physical amount of gold, silver, or some other marker, rather than being a "floating currency," meaning its value would fluctuate depending on the currency market, as it does now Case is. The U.S. stuck to the gold standard in the late 19th century, but began to abandon it during the Great Depression – for good reason.
Most common economic thinking today opposes a return to the gold standard, which many experts say actually did damage during the Great Depression because people hoarded gold after the 1929 stock market crash. "The gold standard is a bad means to a bad end," former Fed Vice Chairman Alan Blinder wrote in a Wall Street Journal published in 2019.
President Richard Nixon officially closed the door to the gold standard in 1971. However, Shelton said, "Let's go back."
"If, by a gold standard, people believe that government-printed paper money is depreciating, they must switch to gold," she wrote in a 2009 WSJ comment. That same year Shelton wrote Money Meltdown, advocating for Established a unified international currency regime to return to the gold standard to fight inflation. In 2012 she moved to TheGoldStandardNow.org, a website dedicated to this topic.
In her February Senate Banking Committee confirmation hearing, Shelton was cautious about her position, saying she was not in favor of "reverting to a previous historical currency arrangement" and insisted on simply looking at "historical systems" in order to "win." ". valuable findings ”to inform politicians now.
During the hearing, Shelton also tried to distance himself from previous proposals that the FDIC, which insures bank deposits, encourages risky behavior by banks, and from time to time had questioned whether the Fed is acting independently of the White House and Congress should.
It is highly unlikely that the US will return to the gold standard or that Shelton will be able to change thinking at the Fed, but the situation symbolizes many of the concerns about their nomination: it's not really clear which version is von Shelton, the one before Trump or the one after Trump, is up for a vote.
Which Shelton would be taken to the Fed?
While Shelton's unconventional positioning on gold and a few other issues make her a little awkward at the Fed, it's even more uncomfortable how she appears to have skewed her post-Trump opinions compared to pre-Trump. When Barack Obama was President, like Trump, she criticized the Fed for keeping interest rates low and doing too much to help the economy. Now that Trump is in the White House, she's had a change of heart. In 2019, she told the Washington Post that she would "cut rates as quickly, efficiently and quickly as possible". To be clear, this was long before Covid-19 hit and triggered a recession.
It was a position in line with Trumps, who at around the same time suggested he might try to get rid of Fed chairman Jerome Powell and often complained that Powell's decisions were not what he wanted.
The Post interview, like an interview Shelton had done weeks earlier with the Financial Times, took place at the President's DC Hotel. During the interview, she also suggested that she host a conference on the gold standard in Trump's Mar-a-Lago. In other words, she's pretty comfortable with the president.
If Shelton ends up on the Fed's Board of Governors, a big question is what she would stand up for and what she actually believes in. The cynical (and perhaps most likely) reading here is that Shelton believes what she has for most of her career – that the gold standard is good, the Fed is often not, and higher interest rates are often better. Is it possible that the central banks gave it a religion on interest rates and a more accommodative approach? For sure. Or she just got a religion on Trump.
"It's up to her what Judy Shelton shows the Fed and how she uses her position," said Binder of the Brookings Institution. "Is it a soap box for her old position, or does she really believe in low interest rates to stimulate an economy when an economy is under stress?"
Shelton has not returned a request for comment on this story. The White House declined to comment on the protocol.
Trump's support for Shelton makes sense. Senate Republicans, not so much.
President Trump had a tough time with some of his attempted Fed picks, those that were a little off the beaten track. He appointed Powell, whom most economists and experts agree, that he did a good job in his post, despite Trump complaining a lot about him.
Trump has also tried to get Herman Cain, the late former businessman and Tea Partier, and right-wing economist Stephen Moore to join the Fed's Board of Governors in the past. As Matt Yglesias explained to Vox, these two didn't make it through confirmation:
Cain was a clearly unqualified choice with little relevant experience and a scandal-ridden past. A few weeks after the story of his possible nomination leaked, he pulled himself out of the running, citing the idea that he could make more money and skip the "cumbersome" review process by avoiding government service. That left Moore, whose nomination collapsed after the exposure of a long line of misogynistic writings, a plausible pretext for Senate Republicans to goad him.
If Shelton is confirmed, and eventually the more conventional Waller, Trump will have all of the open seats on the Fed's Board of Governors filled, leaving none for President-elect Joe Biden to fill himself. Lael Brainard would remain the only Democrat-appointed governor despite being considered the front runner for the next Treasury Secretary to open her seat.
Prior to the election, there was speculation that if Trump were to be re-elected, he would try to oust Powell as Fed chair and put Shelton in his place. The idea was that she would likely bow to the president's wishes. Now that Trump has lost, her power within the Fed would likely be quite reduced. It would be just one voice – and voice – of many.
What is a little murky, why so many The Senate Republicans were there. You could easily endorse Trump's more conventional candidate Waller and give the president time to nominate someone who doesn't hold such extreme views. Republican Sens. Susan Collins of Maine and Mitt Romney of Utah said they wanted to vote against Shelton's nomination that summer, but Senator Lisa Murkowski of Alaska said she would support them last week, in what appears to be the announcement by Senate Majority Leader Mitch McConnell He would vote in the Senate.
But even with Murkowski's yes, it wasn't enough to exaggerate Shelton, at least not yet.
On Monday, Senator Lamar Alexander (R-TN) decided he would not support Shelton after all. “I am not convinced that they support the independence of the Federal Reserve Board as much as I believe the Board of Governors do. I do not want to leave the administration of the money supply to a Congress and a President who cannot balance the federal budget, ”he said in a statement.
Sens. Rick Scott (R-FL) and Chuck Grassley (R-IA) are quarantined for Covid-19 exposure, with two more Republican voices removed from the mix, and Sen. Kamala Harris (D-CA) , who elected Vice President, traveled to Washington to vote.
McConnell could bring a vote on Shelton back to the floor, but the GOP doesn't have much time to push it through. In early December, Democrat Mark Kelly will take over the seat of Republican Senator Martha McSally in Arizona after winning a special election.
"Coronavirus is recovering, the economy is suffering, and instead of putting out the fire, the Republicans are lighting the flames with their candidate," Senator Sherrod Brown (D-OH), senior Senate banking committee member, said in a statement. “With this election, the American people sent a clear message that they voted for stable and competent economic policy, not for marginal theories, and for a return to the gold standard. Judy Shelton is not eligible for the Federal Reserve Board of Governors and her nomination must be rejected immediately. "
Judy Shelton is to be the governor, not the queen
If Trump were to sail for re-election, Shelton's nomination could be pretty worrying. The Fed is supposed to be independent of political whims, and Shelton seems anything but. (To be fair, Trump isn't the only president trying to lean on the Fed, despite being so much more public than his predecessors.) With Biden in office, your position may not be ideal, but it's not that The End. everything, everything too.
"Shelton's influence on Fed policy-making will almost certainly not match the attention her nomination received. She can make speeches and media interviews that make headlines and occasionally annoy Fed colleagues," wrote Ian Katz, director of Capital Alpha Partners, in a recent note: “But as one vote among seven Fed governors, Shelton's influence will be limited.” Even if it gains cult status outside the Fed – something we wouldn't rule out – the other Fed governors will dont move. "
"When there are no allies present, the impact of a given governor is limited," said Binder.
Shelton's term is slated to expire in early 2024, which means that her term would have expired before the next presidential election.
Nonetheless, critics continue to express deep concern about Shelton. In January, Senator Elizabeth Warren (D-MA) sent Shelton a six-page letter asking her to explain her “radical” views and her “history of forming views on politics based on political loyalty”.
"One of the very important elements is that the fact that the Fed is gaining a lot of respect and importance as a monetary policy tool has to do with the fact that it is fundamentally independent of political considerations," said law and finance professor Sarin. said. “You need smart, skilled people who understand how the financial system works in the real world and think about the kinds of interventions that are valuable to the economy, and I don't need to know anything about them to understand that they aren't these Person is. "
It's easy to wonder why Shelton, who has asked in the past if a central bank is needed, really wants the job at all.
I spoke with Shelton for TheStreet in 2017 about the president's considerations regarding the election of the next chairman of the Federal Reserve, and some of the questions she saw then on the matter are the same as her nomination as governor is now.
She spoke about her reputation as a "gold bug" as well as the independence of the Fed and concerns about the president choosing someone too close to him. "There are always problems when the Fed chairman is viewed as someone who works for the president. I don't know if that is generally a good thing. So that could be a caveat," Shelton said.
She also said that she "wants to see someone not afraid to question conventional wisdom" at the Fed. Now it looks like this person is you.
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