WASHINGTON (MaceNews) – The following are excerpts of a Mace News transcript of Federal Reserve nominee Judy Shelton’s exchanges Thursday with members of the Senate Banking Committee, with questions paraphrased:
| Q – Some have tried to characterize your support for the gold standard as outside the mainstream thought and disqualifying for this position. What exactly are your views on monetary policy and the gold standard? Shelton – I would not advocate going back to a prior historical monetary arrangement. I think it’s really important to acknowledge that the power to regulate the value of U.S. money is given to Congress by our Constitution and Congress has created the Federal Reserve as an independent agency and given it its monetary mandate. That is the framework under which I will make decisions if confirmed as a member of the Board of Governors. I have looked at historical systems going back. … I think you can I think you can gain valuable insights by comparing economic performance under one set of monetary rules versus another but money only moves forward and we see it evolving faster than ever these days and so I only use it to give perspective on money. — Q – Do you think the chairman has done a good job making independent decisions regardless of what the president tweets? Shelton – I think the chairman and every member of the Federal Open Market Committee is sufficiently self-possessed to rely on their own judgment. I don’t think any of them are influenced by political pressure. I don’t censor what other people say but I do believe that every American every member of Congress and even the president has the right to criticize our Federal Reserve. — Shelton – What we’ve seen historically is some Fed chairmen have felt they were being pressured behind the scenes. In some ways it’s refreshing if that’s out in the open and as I say everyone, certainly business journalists, dissect every word that’s uttered by a Federal Reserve official. — Shelton – I pledge to be independent in my decision-making and frankly, no one tells me what to do. — Shelton – I don’t claim to be in the mainstream of economists … I am an economist sir. … My Ph.D from the University of Utah was administered through the finance department as majoring in international finance and economics but it is a business administration degree through their school, yes. — Shelton – I would look very much forward to working with my colleagues at the Federal Reserve I have great respect for their capabilities and for their judgment. I think I would bring my own perspective. But I think the intellectual diversity strengthens the discussion and would be welcomed. And so that is what I would hope to bring but certainly with the goal of working with the people who were there as together we would try to formulate monetary policy most conducive to productive economic growth. — Shelton – You never go back with money. It keeps moving forward into the future. And I’m surprised that people attempt to say they must have some thought about me advocating a gold standard and I suppose they’re talking about the classical international goal standard. I would just point out. That there’s about $1.8 trillion in outstanding federal reserve notes. That’s just the currency. Most of it’s held outside the country. If you looked at the market value of the U.S. government’s total holdings of gold, it would be less than even a quarter of that amount and that’s just the most basic form of money. It is a commodity. It has it has a historical use as a monetary surrogate, but it’s mixed use today and so as I’ve said, it’s useful to look at something that worked from 1870 to 1913 when the U.S. was a participant in the classical gold standard. — Q – It’s worth it to look at the Bretton Woods gold exchange standard where the U.S. was the anchor from 1944 to 1971, but that was 50 years ago. When we had any kind of a monetary role for gold, we certainly have to just be looking toward the future. Have you advocated return to the Brenton Woods? Shelton – A lot of nations were still struggling; the war wasn’t over when Bretton Woods was being put together by the United States. We were thinking is this going to be worth it to win because if we’re going back to what we had in the 1930s when you had competitive devaluation you had retaliatory tariffs and that created a downward spiral and international trade. That’s not worth fighting for. So the United States actually set up the Bretton Woods agreement to give hope that there would be a better future and that investment would flow to its highest use around the world. And that people would not use competitive depreciation to undermine the principles of free trade. — Shelton – I totally support federal deposit insurance. We’ve had it since 1933. I think it’s essential to reassuring depositors that they can safely put their money into American banks. This idea that I’m somehow against a deposit insurance, I try to find out where that even came from. Tthe only reference I could find to me even commenting on deposit insurance goes back 25 years where in the course of explaining the theory of moral hazard I said that if there’s government insurance in theory a bank might engage in riskier financial behavior seeking profits because they would be protected by the government insurance. — Q -Did you write America needs no borders? Shelton – No, and if you’re referring to something I wrote in 2000, I’d be happy to explain the context of this rumor. What I was talking about had nothing to do with immigration. In 2000 as I’m sure you’re aware for the first time in 70 years Mexico elected president who had not been a member of the ruling party. And Vincente Fox was saying that he recognized. Mexico was experiencing a collapse in his currency every six years coinciding with their electoral cycle. He wanted to be something new and he wanted to bring Mexico’s finances into order balance the budget aligned their regulatory approach to banking to something closer to what we have in the United States and I thought that should be encouraged. I think we want a prosperous stable economy on our border and I also feel that it’s only fair for Mexicans to have a chance to be successful in their own country, actually. So that’s what that article was about. I’m happy to submit for the record. Mr. Chairman, some articles that speak quite differently to the view you’ve just expressed on this in some of the other things. — Shelton – Among the factors that we need to consider if I were to become a member of the Board of Governors is the political context of the global economy and global finance and I think we have to be aware of what other central banks are doing. Last year 49 central banks lowered their interest rate, which caused their currencies to depreciate relative to the dollar and it wasn’t until July that our Federal Reserve decided likewise to lower a quarter point. — Shelton – It would be anathema to me to suggest that we devalue our money to gain a trade advantage. What I’m saying is within the context of the framework for deciding monetary policy, we also have to look at the impact on employment and unstable prices and if other central banks engage in those unfair practices, it can affect employment, especially our manufacturers who have to compete against. We can observe that from domestic data. We don’t have the reference foreign exchange rates to determine whether there’s an adverse problem with employment. — Q – Do you favor selling federal lands, Postal Service, Amtrak? Shelton – I don’t recall taking that position. It’s not something I’m strongly advocating. I think it’s always disconcerting to change employment or make some transition away. … I believe, Senator Tester, that that’s a decision up to Congress and would have nothing to do with the Federal Reserve. — Q – Did you write six months ago that monetary policy should be coordinated with both Congress and the president? Shelton – That article was explaining the legislation that has shaped the role of the Federal Reserve especially with regard to its accountability. I was quoting from the 1978 Humphrey Hawkins Act which was passed by Congress a year after the Federal Reserve reform act and what I was explaining is that that legislative language actually sets out six economic objectives for the country and then it says, quote, these objectives should be facilitated by improved coordination among the president the Congress. Honestly, it’s surprised me to read that in the language. It surprised me to read it and then I merely revealed that and I’ve been subsequently surprised that it’s attributed to me rather than to Congress who wrote it. — Q – Assume that you’re queen for a day and you’re running the Federal Reserve and you have unfettered discretion. How would you get us out of an economic crisis? Shelton – I think we’re down to the other tools that the Federal Reserve has. Q – Would you lower interest rates? Shelton – I would never go negative. I think I mean, I’m adverse to that idea. Q – Would you take rates to zero? Shelton – At the maximum and I don’t like to say you would eliminate courses of action but I’d be very reluctant to go below that. Q -Would you go to quantitative easing? Shelton – Reluctantly, but I think first I would make it clear that there are limits to monetary policy. At some point you really can’t stimulate growth. The immediate fiscal response was an $800 billion package of government spending that ultimately turned out not to have a stimulative effect as we might have hoped and there was talk of projects that weren’t shovel ready. We went to these extreme monetary measures. -0- |