In a recent interview with Soar Financially, former economic advisor to President Trump, Dr. Judy Shelton, illuminated a potential path towards a "sound money" system, hinting at a clash between the former president's agenda and the current Federal Reserve under Chairman Jerome Powell. The discussion saw Shelton, a senior fellow at the Independent Institute, delve into the intricacies of the US economy, the role of the Federal Reserve, and the potential for a gold-backed Treasury bond to reshape the nation's financial future.
Host Kai Hoffman engaged Shelton in a wide-ranging conversation, focusing on potential solutions to the US debt bubble and the perceived overreach of the Federal Reserve. Shelton didn't shy away from expressing her concerns about the Fed's current influence, stating unequivocally, "I think the Fed today is too political, too prominent in credit markets and too powerful."
A central theme of the interview was Shelton's advocacy for a gold-backed Treasury bond. Drawing inspiration from former Fed Chairman Alan Greenspan, who wrote about the concept in 1981, Shelton believes such a bond could exert pressure on Congress to curb deficit spending and signal a commitment to a more stable dollar.
"What I think would be very smart and what would serve as a barometer on US progress on both the fiscal and the monetary front toward a balanced budget and a dependable dollar would be to have a much longer-term Treasury offering," Shelton explained. She specifically suggested a 50-year bond, referencing similar long-term offerings by other nations.
Shelton highlighted the significant increase in the value of gold since 1973, noting the US's substantial gold reserves held at a considerably lower book value. She sees an opportunity to leverage this appreciation by offering a bond with gold convertibility at maturity. "I think if you added this gold convertability feature, there would be tremendous investor appetite, and it would be highly symbolic," she asserted.
Shelton voiced strong concerns about the current role and influence of the Federal Reserve, echoing sentiments that have often been aligned with President Trump's views. "I'm concerned at the ratcheting up in the tensions between the White House and the Fed," she stated, emphasizing that this "battle needs to be conducted by Congress."
She questioned the accountability of the Fed and the immense power wielded by its chairman. "Here you have someone with so much power in a position to channel financial rewards to some segments of society at the expense of others who could make interest rates be zero so that people who save a little bit every week in their bank account get zilch," Shelton argued.
Her critique extended to the Fed's monetary policy tools, particularly the payment of interest on commercial banks' reserve balances. "When they say we're sticking at our current rate it means they're going to continue to pay 4.4% that's quite a hefty return on a risk-free government guaranteed cash deposit that a bank keeps at the Fed," Shelton elaborated, suggesting that this practice benefits large banks, including foreign-owned institutions, at the expense of taxpayers and potentially hinders lending to the real economy.
The conversation also touched upon the recent surge in gold prices, currently around $3,300 per ounce. Shelton attributed this rise to a combination of factors, including increased demand from central banks and individual investors seeking a haven amidst global uncertainty.
"I think it might be geopolitical in the sense that central banks around the world are acquiring gold, so it's just pure demand," Shelton noted. She also pointed to the growing popularity of gold as an investment option for American buyers. Importantly, she views gold as a "surrogate for the integrity of our currency," expressing her hope for a future official link.
In a powerful closing statement, Shelton posed a fundamental question that she believes deserves urgent discussion in Washington: "What is the proper role of a central bank in a free market economy?"
She challenged the notion of a small committee dictating the cost of capital, particularly through the Fed's current practice of paying interest on reserve balances, which she likened to the Soviet Union's Gosbank system. "I don't like to see our banking system similarly made into appendages of the central bank," Shelton declared.
Furthermore, she raised concerns about the Fed potentially undermining a president's economic agenda, referencing perceived disagreements between Trump's desire for lower inflation and interest rates and Powell's commentary on trade policies. "I think that was an inappropriate comment by the Fed chairman, but indicative of this power that the Fed has assumed," Shelton stated.
When directly asked if she would consider the position of Fed Chair if it became available, Shelton responded, "I would be honored to be considered."
Judy Shelton's interview on Soar Financially paints a picture of a potential future where the concept of a gold-backed currency, championed by figures like herself who have advised President Trump, could directly challenge the current monetary policy framework of the Federal Reserve. Her critique of the Fed's power and practices, coupled with her advocacy for a gold-backed Treasury bond, suggests a fundamental disagreement on the principles of monetary policy and the role of the central bank in a free market economy. As the economic landscape continues to evolve, the ideas presented by Shelton in this interview could gain further traction, particularly if there is a renewed push for policies aligned with the "sound money" principles she espouses.