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If You Think Amy Coney Barrett Is Extreme, Meet Judy Shelton

Trump’s nominee to the Federal Reserve has gotten a lot less publicity. But her desire to return the US to the gold standard and eliminate federal deposit insurance could destroy the economy.

James Ledbetter

September 29, 2020

Judy Shelton testifies before the Senate Banking, Housing, and Urban Affairs Committee.(Tom Williams / CQ Roll Call via AP Images)

The United States is understandably going through a Supreme Court nomination frenzy. The death of Ruth Bader Ginsburg, the cynical postures of the Senate, and the prospect of decades of conservative court domination should Amy Coney Barrett be confirmed all provide more than enough drama. There is, however, another nomination getting much less attention—even though, arguably, it poses at least as much risk: Trump’s nomination of Judy Shelton to the Federal Reserve board.

As Trump appointees go, Federal Reserve chairman Jerome “Jay” Powell has been a pleasant surprise. In March and April, he was widely praised for swift and dramatic action when the Covid pandemic emerged, freeing up trillions of dollars to support the economy. More recently, his decision to abandon decades of Federal Reserve policy by downplaying the 2 percent inflation target was applauded by most liberal and left economists. As a reward, Powell has found himself constantly attacked by the president, who asked in a 2019 tweet whether Powell or Chinese premier Xi Jinping was a greater enemy of the American people (although more recently Trump has referred to Powell as the “most improved player.”)

But Powell will not be Fed chair forever, and Trump seems more likely to get a Federal Reserve he can control if Shelton is approved by the Senate for one of the board’s seven seats. Shelton, a longtime research fellow at the Hoover Institute, was an adviser to Trump’s 2016 presidential campaign and until last year was the US envoy to the European Bank for Reconstruction and Development (The Wall Street Journal reported that she was absent from 12 of the 28 board meetings during her tenure). To say that Shelton has taken positions outside the economic mainstream is a severe understatement. Her advocacy for the gold standard and her views on financial regulation place her on the absolute fringe of modern economic thought, and if enacted would lead to economic chaos.

The Federal Reserve is deeply flawed and deserves constant scrutiny and criticism. Yet, as evidenced by the 2008 financial meltdown and the pandemic-induced financial crisis this year, a central financial authority is an absolute necessity in a crisis. Without it, markets will collapse and economies will be destroyed for years, if not permanently. As bad as the American economy may be right now, if Powell had not this spring authorized the overnight creation of trillions of dollars, there would be millions more Americans out of work and thousands more shuttered businesses.

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But Shelton doesn’t believe in the idea of a Federal Reserve system, or indeed any power of government to determine the value or supply of money. In her 1994 book Money Meltdown, Shelton argued that the United States should “repeal all current federal legal tender laws,” (p. 301) which would return the US financial system to its crazy-quilt pre–Civil War status, when states, banks, and companies could all issue their own money. She advocates eliminating the Federal Reserve’s open market operations and ending the Fed’s ability to hold government debt—the very tools that Powell and previous Fed chairs have used to try to keep and get us out of recessions.

All of these extremist views are in service of reinstating a version of the gold standard, in which the dollar is tied to a specific amount of gold (as was the case in the Bretton Woods international financial system, which ended in 1971) and gold coins would be widely circulated.

Every serious examination of an American gold standard over the last century has concluded that it would be unworkable at best, and likely to lead to economic catastrophe. In a 2012 survey of 40 economists teaching at major American universities, a total of zero responded favorably to the idea of returning to a gold standard. Richard Thaler, an economist at the University of Chicago, quipped, “Why tie to gold? Why not ’82 Bordeaux?”

The gold standard has not been part of the Federal Reserve’s thinking for more than half a century. Even Alan Greenspan, a longtime gold-standard advocate whom Ronald Reagan appointed as Fed chairman in 1987, admitted in his confirmation hearing that “fixing the price of gold by central bank intervention seems out of reach,” and never seriously pursued it as a policy goal.

Shelton has also taken the scary position that the US government should not guarantee bank deposits, a confidence-boosting safeguard that dates back to the Great Depression; some version of deposit insurance exists in every major economy in the world. To Shelton, federal deposit insurance “undermines the integrity of the banking industry in the United States by steering it in the direction of excessively risky loan portfolios.” As for your savings account, Shelton wants to disabuse you of “the mistaken notion that funds deposited in interest-bearing accounts at banking institutions can be thought of as being safe.”(pp. 305-6)

Or at least that’s what Shelton wrote in her 1994 book. When questioned during a February Senate hearing, Shelton said “I totally support federal deposit insurance. We’ve had it since 1933.” Little wonder that senators accused her of a “confirmation conversion.”

Will Shelton be confirmed? In July, the Senate Banking Committee voted 13-12 to send her confirmation to the full Senate. No Democratic senator will vote for her. On September 15, Bloomberg reported that Republicans Mitt Romney and Susan Collins would not vote for her and that Lamar Alexander and Lisa Murkowski were uncertain. Republicans’ rubber-stamping Trump’s positions and appointees is nothing new, but in the case of Judy Shelton, such complaisance could create long-term economic damage well after Trump leaves office.

James LedbetterJames Ledbetter is the chief content officer of Clarim Media and the author, most recently, of One Nation Under Gold: How One Precious Metal Has Dominated the American Imagination for Four Centuries.


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