Ep.116 Real Conversations: Judy Shelton, Senior Fellow, Independent Institute
Sep 12, 2024
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Judy Shelton, a renowned monetary economist and Senior Fellow at the Independent Institute, discusses her thought-provoking ideas on monetary policy and inflation. She advocates for a return to a gold-backed dollar, arguing current policies disproportionately benefit the elite. Shelton shares insights from her book, highlighting the need for a fair monetary system to ensure economic stability. She critiques the Federal Reserve’s strategies and emphasizes the importance of transparency and accountability in restoring public trust in economic governance.
Judy Shelton critiques the Federal Reserve's 2% inflation target, arguing it undermines purchasing power and exacerbates family finances.
The psychological impact of inflation on American families is significant, affecting major purchasing decisions and overall financial stability.
Shelton advocates for a new Treasury security linked to gold, aiming to restore trust in the monetary system and the US Dollar.
Deep dives
Impact of Monetary Policy on Purchasing Power
The current monetary policy of the Federal Reserve is critiqued for its persistent 2% inflation target, which has resulted in a significant erosion of purchasing power. Since January 2021, general price levels have surged by over 20%, with further expected inflation compounding the issue. A suggestion is made to reflect on historical monetary systems, particularly the classical gold standard, which allowed individuals to redeem currency for gold, promoting trust and stability. This approach is presented as a potential framework to restore sound money principles in today’s economy.
Cumulative Effects of Inflation on Families
The cumulative impact of inflation has caused substantial financial strain on American families, particularly since early 2021, with prices increasing dramatically. A hypothetical scenario is presented where even a return to a 2% inflation rate over a subsequent administration would continue to elevate costs, exacerbating the financial burden. The discussion emphasizes the psychological toll inflation takes on families and their financial decision-making, particularly regarding major purchases like homes. It is argued that the government’s persistent inflationary policies have undermined individuals' ability to maintain their purchasing power over time.
Federal Reserve's Ineffectiveness in Managing Economic Signals
The Federal Reserve's monetary policy framework is criticized for prioritizing maintained reserve balances over actual market signals of capital costs. This approach, which emerged post-2020 as the Fed began to pay banks sizable interest on reserves, is seen as counterproductive, stalling potential economic growth and lending. The conversation posits that high borrowing costs imposed on individuals and businesses create barriers to investment and expansion, stifling economic productivity. Direct comparisons to past Fed Chair Paul Volcker's more active engagement with markets highlight a desire for a return to more practical, market-responsive monetary policy.
The Need for Policy Alignment Between Monetary and Fiscal Strategies
The disconnect between monetary and fiscal policies is underlined as a critical issue affecting economic health. While the Fed raises interest rates to curb inflation, expansive government spending through fiscal stimulus programs continues to stimulate demand, creating a contradictory economic environment. This misalignment leads to rising borrowing costs for the private sector while the government has unfettered access to capital, skewing the market dynamics. Without coordinated strategies, sustainable growth becomes increasingly elusive, leading to long-term economic instability.
Reimagining a Gold-Linked Treasury Bond System
A proposal emerges to reestablish trust in the monetary system through a new type of Treasury security that would be linked to gold. This innovative financial instrument would allow investors to redeem their bonds for a specified amount of gold, appealing to those seeking a hedge against inflation. By utilizing the substantial gold reserves held by the U.S. government, this system could enhance confidence in the dollar, rekindling its reputation as a trustworthy currency globally. The concept would potentially generate new interest and investment in government securities while promoting a more stable economic environment.
Join Hedgeye CEO Keith McCullough on Thursday, September 12, at 11:00am ET as he welcomes renowned monetary economist Judy Shelton for a must-see webcast that delves into monetary policy, inflation, gold, the US Dollar and other pressing economic issues of our times.
From the echoes of financial crises to the recent spikes in pandemic prices and the persistent cycles of inflation, the economic landscape remains tumultuous. Yet, amid the murky discourse of economics dominated by questionable pundits and politicians, Judy Shelton stands out with clear, courageous insights that provide real and actionable solutions.
A Senior Fellow at the Independent Institute and former Chairman of the National Endowment for Democracy, Shelton brings to the table a profound understanding of monetary policies and their far-reaching implications. Her latest book Good as Gold: How to Unleash the Power of Sound Money offers more than just analysis; it provides a blueprint for a prosperous economic future. Shelton challenges the status quo, particularly criticizing the inflationary policies that disproportionately benefit the elite while disadvantaging the middle and lower classes. Her bold stance is that this can—and must—change.
In our upcoming webcast, Shelton will discuss her vision for the US Dollar—a vision that sees it perform "as good as gold... or even better." She argues for a new international monetary order, advocating for a use of gold that transcends traditional and historical constraints, offering a step-by-step guide on how gold can act as a universal measure of value, enhancing financial stability and fostering global economic growth.
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