Judy Shelton And The Fed

I come not to praise Judy Shelton, nor to bury her. But the blanket media and political condemnation of her as President Trump’s latest (I forget which number we’re up to) nominee for the Federal Reserve Board strikes me as having nothing to do with her actual qualifications for the job but rather a reflection on her sponsor and her failure to be “the right kind of people,” meaning someone who doesn’t subscribe to the establishment groupthink.

During the several days prior to her confirmation hearings before the Senate Banking Committee last week, and back when she was first nominated, there was a flurry of scare headlines and stories about her unfitness for the position. No less than the sanctity of the independence of the Fed and the security of the U.S. economy was in jeopardy if she was confirmed. Here’s a small sample:

• New York Times: “As Congress Prepares to Vet Judy Shelton, Worries About the Fed’s Future Mount”
• Washington Post: “Republicans Must Protect the Fed From A Flagrantly Unqualified Nominee”
• Bloomberg: “Judy Shelton Would Destroy Trump’s Pro-Worker Legacy” (as if Bloomberg would acknowledge any Trump accomplishment)
• CNN: “Trump’s Fed Pick Isn’t Just a Gold Bug – She’s Also a Crypto Bull”

The Post also provided 10 of what it says are her “most controversial quotes.”

Controversial quote number 1 was this: “I don’t see any reference to independence in the legislation that has defined the role of the Federal Reserve for the United States. It would be in keeping with its historical mandate if the Fed were to pursue a more coordinated relationship with both Congress and the president.”

Indeed, how independent can the Fed be when its members are appointed by the President and ratified by the Senate? And it funds itself by buying massive amounts of government securities. Not to mention that Congressional mandate thing. Is it unreasonable to expect an agency that has a Congressional mandate might actually have to report to Congress every so often to make sure it’s adhering to that mandate?

On the second point, the Fed has pretty much always worked closely with the government, particularly during financial crises. The Fed worked very closely with the Treasury Department and White House during the crisis and still does, and probably always will.

Number 5: “I don’t see why a central bank should even be allowed to buy government debt. That’s just a conflict of interest right there. What the Federal Reserve is doing is very close to central planning.”

Lest we need reminding, the idea of the Fed buying government debt was highly controversial when former Fed chair Ben Bernanke began doing just that during the darkest days of the financial crisis, but it was seen as a necessary expedient. Yet, here we are 10 years later, with the economy growing at a 2% annual clip and the unemployment rate at a 50-year low, and the Fed is still expanding its balance sheet.

Readers of one of my most recent columns will note that I’ve made the same argument numerous times, namely that the Fed has set a floor under the stock market to ensure that investor losses are kept to a minimum, a gross abuse of its Congressional mandate.

Number 6: Shelton favors “virtual” currencies. “A modern version of this approach — one that permits the issuance of virtual currencies in tandem with government-issued currencies, adapting legal tender laws to permit healthy currency competition — should be put forward,” she said.

In fact, as we know, many of the world’s major central banks, including the Fed, have been doing intensive research on the idea of issuing their own digital currencies.

Many of her actual controversial statements, such as abolishing FDIC insurance and returning to the gold standard, were said a decade or more ago and her critics misconstrued no doubt. Many public figures would have trouble reconciling something they claim to profess today with what they said last week, never mind 20 years ago.

This wasn’t in the Post’s Top 10 list, but here’s a quote from her prepared remarks at last week’s hearing: “I believe everyone has the right to criticize the Federal Reserve, including the president, every member of Congress and every citizen.”

Is the Fed exempt from criticism, and should it be, even if it’s independent? Is the Supreme Court?

Meanwhile, Trump’s other Fed pick, Christopher Waller, the current research director at the St. Louis Fed, who appeared at the same Senate hearing as Shelton, got a free pass. But, of course, he already has a Fed pedigree, so will no doubt be confirmed by the full Senate with flying colors.

As for Shelton, who has ideas of her own that differ from the conventional Washington view, is being lambasted by both right and left. Isn't it ironic that someone who thinks independently has no place on an institution that supposedly prizes its independence?

Visit back to read my next article!

George Yacik
INO.com Contributor - Fed & Interest Rates

Disclosure: This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.