In a previous article published last May on Judy Shelton (Trump Administration’s economic advisor) and her advocacy for a new gold standard, we called it then, and now the narrative is unfolding. In a move that may risk a new clash with Congress, President Trump tweeted last week that he’s nominating to the US central bank’s board Christopher Waller of the St. Louis Fed and, drumroll... Judy Shelton, the long-time sound money advocate who has been pushing hard to introduce a new gold standard into the US financial system.
After months of criticizing the Fed for its rate hikes, followed by efforts to pressure the central bank to slash rates, Trump’s Shelton nomination is expected to gather sharp resistance from politicians, as most of the economists to whom they defer don’t support her view that the dollar should be pegged to the price of gold. Both nominees’ fates are contingent upon Senate approval.
We all know the outcome of the Trump vs Fed conflict, most of which was made public via twitter war. Fed Chief Jerome Powell gave in. Citing slowing global growth and trade tensions, Powell announced that a rate cut would take place later this month, marking the first cut in a decade.
Shelton may currently share Trump’s low-interest bias, but in the past, she harshly criticized the Fed for keeping what she called “ultra-low interest rates” too low for too long. In a WSJ interview, she mentioned that these low rates have “flooded wealthy investors and corporate borrowers with cheap money, while savers with ordinary bank accounts have been obliged to accept next-to-nothing returns.”
But now she sings a different tune. “When you have an economy primed to grow because of reduced taxes, less regulation, dynamic energy, and trade reforms, you want to ensure maximum access to capital,” she said in a recent WSJ interview. She continues, “today we are seeing impressive gains in productivity, which more than justify the meaningful wage gains we are likewise seeing — a testimonial to the pro-growth agenda.”
Despite their shared vision, one would wonder if there are any fundamental differences in approach that would cause Shelton and Trump to clash. Possibly. Repeatedly, she has called for the Fed to reduce its balance sheet (the bonds it purchased to prop up the US economy). This goes directly against President Trump’s position which urges the opposite approach, stimulating growth as he heads into his re-election campaign.
Additionally, Kudlow tweeted in 2016 that Trump should consider putting Shelton on the Fed board, citing her support for a strong dollar. Yet Trump has expressed multiple times over the past year that a strong dollar would only make imports cheaper and exports more expensive, widening the US trade deficit.
But despite their differences, Trump is cognizant of Shelton’s advocacy for sound money, and most importantly, for a return to the gold standard. This is an idea that nearly all “mainstream” economists vehemently reject. And perhaps the outcome of what mainstream economists have done to our economy may be the very reason for Judy Shelton’s current nomination.
If you invest in gold, not only would a new gold standard legitimize gold’s position as a currency, it would also be a major asset you would want to hold in your portfolio, as financial and commercial institutions, as well as central banks, may be rushing in to purchase the only legitimate form of money to back paper currency for the purpose of international trade.