Coronavirus, Judy Shelton, and the Federal Reserve
This article is from the archive of The New York Sun before the launch of its new website in 2022. The Sun has neither altered nor updated such articles but will seek to correct any errors, mis-categorizations or other problems introduced during transfer.
Coronavirus Derangement Syndrome has struck the Washington Post’s editorial board, we see. The symptom? It wants to try to control the disease by keeping economist Judy Shelton off the Federal Reserve board. It does so while endorsing the rate cut President Trump called on the central bank to put through to deal with the economic shock of the coronavirus.
Cheering on the Fed in the name of independence for doing what the President called for it to do is beyond our own skills at editorial work (no great compliment, we understand). The Post seems to have concluded that the Fed chairman, Jerome Powell, relied on his own judgment, even if Mr. Trump figured it out before the Fed could get its act together.
The President is just infuriating that way. In any event, the Post reckons the Fed and its fellow central banks “could not stand by idly” when there was “anything they could do to prevent the inevitable shock to global growth from getting worse.” It notes that shock is estimated by the Organization for Economic Cooperation and Development at half a percentage point.
The Post goes even further, though. It reckons that with the federal government’s cost of borrowing for 10-year obligations now below 1% a year — “the lowest rate ever,” the Post notes — “there is also a case to be made for at least some extra federal borrowing to help weather the crisis.” The Post prefers this to be targeted at defraying direct costs of coping with the pandemic.
Congress, the Post adds, will “need time to craft any such response.” There is, though, one immediate thing the Post reckons Congress could do to “shore up” economic confidence — namely, “deny confirmation” of Judy Shelton. It claims she’s “poorly qualified” and frets about the “Republican-controlled Senate Banking Committee.”
“Unfortunately,” in the Post’s view, “key members may be wavering” in Ms. Shelton’s favor. It notes that Senator Toomey “has just dropped his objections.” We discussed those earlier in “Senator Toomey’s Point About the Fed.” His concern was that Ms. Shelton might seek to involve the Fed in the trade wars. He has now said that Ms. Shelton addressed his concerns.
The concern that Senator Shelby expressed in the hearing is that Ms. Shelton isn’t a mainstream economist. The concern was also pressed by a Democrat, Senator Sherrod Brown. Ms. Shelton’s answer was to acknowledge: “I don’t claim to be in the mainstream of economists.” Yet she said that she looked forward to working with the economists at the Fed in pursuit of the congressional mandates to the central bank.
This “mainstream” question is illuminated in the latest issue of Grant’s Interest Rate Observer, in a piece by its editor, James Grant. The main point he makes is that the record of the mainstream economists is — our phrasing here — nothing to write home about. He quotes Queen Elizabeth II’s devastating question about 2008: “Why did no one see it coming?”
Her Majesty, alas, hadn’t read Ms. Shelton’s book “Money Meltdown,” an early warning of the crisis that bloomed in 2008. Nor, alas, does Queen Elizabeth take the Sun. It issued a series of warnings starting, in 2005, with “The Bush Dollar.” The Sun urged attention to the plunge in the value of the dollar in the early 21st century, when it collapsed by 46% to less than a 500th of an ounce of gold. Today it’s less than a 1,600th of an ounce.
Our own hope is that Senator Shelby will vote for Ms. Shelton as but one of the governors of the Fed. She would be an asset to the Fed as it and the Banking Committee do their due diligence to look at all angles of the monetary question. Congress holds the constitutional grant of the monetary powers. It has to know that quarantining the ideas of Judy Shelton is not the way to defeat the coronavirus — or America’s actual monetary ailments.