Transcript
In this episode of the Gold Exchange podcast, esteemed monetary economist Judy Shelton joins hosts Ben Nadelstein and Keith Weiner to discuss her latest book, “Good as Gold: How to Unleash the Power of Sound Money.” Shelton delves into the challenges of fiscal unsustainability in the U.S. and proposes the issuance of 50-year U.S. Treasury “Treasury Trust Bonds” backed by gold to foster sound finances. The discussion covers the impact of Federal Reserve policies on wealth distribution and inflation, the need for intellectual diversity within the Fed, and the parallels between U.S. monetary policy and Soviet-style central planning.
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Podcast Chapters
00:00 – “We are in a crisis”
02:10 – Introduction to Judy Shelton and Her Work
02:32 – Discussion on Monetary Favoritism and Wealth Inequality
03:36 – Keith Weiner’s Experience with the Federal Reserve
05:57 – False Alternatives in Monetary Policy
09:12 – Monetary Metals and the Productive Use of Gold
10:24 – Discussion on Stable Prices and Inflation Targets
12:02 – Psychological Aspects of Monetary Policy
16:05 – Intellectual Diversity at the Fed
20:31 – The Federal Reserve’s Singular Tool
24:01 – Lessons from Soviet Central Planning
26:39 – Solutions to Current Monetary Issues
27:20 – The Misconception of Gold Standards
29:59 – New Gold-Backed Bonds
32:46 – Potential Innovations in Sound Money
34:25 – Alan Greenspan’s Influence and Acceptance
38:55 – Proposals and Investor Demand
43:33 – The Overton Window and Discussion of Gold
46:58 – Winston Churchill on American Policy
49:29 – Closing Remarks
50:38 – Monetary Metals
Transcript
Ben Nadelstein:
Welcome back to the Gold Exchange podcast. My name is Ben Nadelstein of Monetary Metals. I’m joined by the CEO and founder of Monetary Metals, Keith Weiner, and our special guest for today, the esteemed Judy Shelton.
Judy Shelton is a senior fellow at the Independent Institute, the former chairman of the National Endowment for a Democracy, and a critically acclaimed Monetary Economist. Judy has provided testimony before the US Senate and has been consulted on international monetary issues by the White House and the Pentagon. She holds a PhD in business administration from the University of Utah and received a postdoctoral fellowship from the Hoover Institution at Stanford University. Judy is the author of multiple books such as Money Meldown and the Coming Soviet Crash, and has written for the Wall Street Journal and the Financial Times. She joins the podcast today to discuss her latest book, Good as Gold: How to Unleash the Power of Sound Money. Judy, welcome to the podcast.
Judy Shelton:
Thank you. It’s a real pleasure to be with you.
Ben Nadelstein:
So let’s start with your book. Your book is called Good as Gold and highlights the idea that without sound money, central banks and governments engage in what you call monetary favoritism. So could you unpack what you mean by that and who are the favorites and who ends up left out in the cold?
Judy Shelton:
The favorites are people who are wealthy enough to already own financial assets. I was looking at data that you can actually find on the Federal Reserve website. And if you look at US household wealth and how it has changed in the last four years, it increased 46 trillion. I think they show the total at 154 trillion now. But 62 % of that increase, 26 trillion of it, went to the top 10th wealthiest Americans. That’s the 90th percentile. So I think where we know that the Federal Reserve impacts how financial markets perform every day, people are glued to the screens trying to decipher the latest nuanced statement of a Fed official, it’s the people who have financial assets, who who have overwhelmingly received the benefit of that increased wealth.
Keith Weiner:
Judy, I don’t know if I ever told you, for some reason, the Manhattan Institute invited me to one of their shadow open market committee meetings, and they had, at that time, the President of the Dallas Fed, Dick Fischer, as the keynote. I don’t remember what he spoke about, but I remember somebody asked him the question, what about the wealth effect? Economists use this term that as asset prices go up, people feel richer and they spend more. He is a charismatic guy, but he said, Well, what about the wealth effect? He said, Well, let me just say the wealthy have been, and he had this gesture with his palms out, very affected. Everybody gave a little golf clap because the room was full of one percenters. I remember just thinking, You’re the son of the gun. You just said it in a nutshell, and you’re very smug about it. And so was everybody who was affected in that room.
Judy Shelton:
I think the Fed sees that as a legitimate part of the mechanism of how they transmit monetary policy decisions to the economy. But that makes you think, or at least I would have responded as you did. I mean, he’s a nice guy and everything, and I probably wasn’t aware that it came across as even smug. But now that we’ve I mean, the Fed will admit that the people hurt the most by inflation are your everyday Americans. And so they want to do right by them. But they’ve really had the double whammy. First, they get hit by the inflation, and then they get hit by the Fed’s solution for inflation, which is to raise interest rates. So they can’t mortgage a house, they can’t finance a new car. And and somehow it’s all supposed to be for their benefit. So if you’re wealthy, you can benefit when rates are zero because you can get a margin loan and invest it in your portfolio. And then when interest rates are high, you can sit back and collect the money market returns at the rate that the Fed is setting as part of its policy-making approach.
Keith Weiner:
Yeah, I was going to say the Fed’s choice is a a false alternative, and I’ve tweeted about this many times, but it’s, Unemploy your neighbor to boost the value of your bank account or erode your savings in order to give your neighbor a job. It seems to be the choice there with interest rates, right? And the average person just gets creamed coming and going.
Judy Shelton:
You know who used that exact expression? I remember In 2015, when Donald Trump was first running as a candidate, he was talking about the Federal Reserve and interest rate policy. And he said, look, I’m a real estate guy. Of course, I love low rates. But he said, think of the people who are just being responsible and putting a little bit aside every week into a bank account when rates were zero. He said, they are getting creamed.
Ben Nadelstein:
So, Judy, in your book, you write that inflation makes suckers out of savers. So can you maybe expand on what you mean by that? And was there a time that actually was rewarding to be a saver compared to today?
Judy Shelton:
Well, I’ll start. I think that really applies when the Fed goes to zero interest rates. That never makes sense. It really doesn’t. It seems like, oh, we’re going to do the ultimate Keynesian approach. And if capital costs nothing, then that will somehow expand the economy. Well, we went after the meltdown in 2008 for seven years at near zero rates, and we still had very sluggish growth. So I don’t think it helps. But all during that time, you had those very people that now President Trump alluded to who are getting cream because they’re getting zero on their savings. But I also think even in times when you’re fighting inflation, you have people who maybe don’t feel sophisticated enough to invest in the market. So maybe you just take your money, which is supposed to be a store of value, and you put it on your mattress. And maybe 10 years later, now you’re ready to use it, but the Fed has deliberately tried to engineer 2% annual debacement of your money. So over those 10 years, it’s lost 20% of its purchasing power, which to me seems like expropriation. That was your private property. And just because you don’t want to risk it in the market or maybe even in a bank, you are penalized for the benefit of the US government.
And I think that’s a violation of the moral contract between government and citizens because we have to use our money unit. That’s legal tender. And I think we deserve sound money that would perform as a dependable story of value and not be subjected to that abuse.
Keith Weiner:
George Orwell would be either putting on your perspective, either turning over in his grave or smug that, Hey, I pointed this out, that the Fed, they call that 2% relentless debasement, maintaining the purchasing power. Forget what the term is that they use on the very website where they describe that policy. You’re right. And it’s nothing. It’s not that at all. But everyone just nods and smiles like the Emperor’s new clothes. Oh, yeah, look, the Emperor’s dressed really well.
Judy Shelton:
Well, exactly. It is, Orwellian. I sometimes call it the oxymoron Because the Fed, they say, We are responsible for stable prices. That’s part of the dual mandate, stable prices. But they have turned that into stable inflation. I mean, price stability. In the original legislation from ’77 and 1978, Congress actually said that they should try achieve zero % inflation by 1988. And when they first were discussing how to interpret the mandate of stable prices, when Greenspan was chairman, it was July 1996. In the transcript, you can see the discussion around the table at the Federal Reserve headquarters in Washington. And Greenspan said, I think stable prices implies zero % inflation. And it was Janet Yellen using the arguments of her husband, a Nobel Prize winner, and he said, No, two or three % inflation works better because of money illusion. And the idea that if you have two or 3% inflation, it camouflages that people are getting a cut in wages in a downturn, and they don’t like that. So you give someone a 1% increase in their nominal wage. But if there’s 2% inflation, they got a cut, but they’re too dumb to realize it.
I don’t mean to be disrespectful, but if you read the transcript, it actually shows that she then said, We did a survey and we asked a Economists, if they would feel good about getting an increase in their nominal wages, but inflation was as high or higher, and she says, You’ll all be happy to know. They said, No, they wouldn’t be happy. And then it shows in parentheses, laughter. So the economists thought, We’re too smart for that game. But these average Americans, they’ll never figure it out.
Keith Weiner:
When she was named, but she was going to be the next Fed chair, I wrote an article for Forbes, and I said, Okay, this person is claimed to be… This was even before she was actually Fed Chair. I wrote an article for Forbes where I dove in and said, Okay, what is she really about? And I found what I think is her seminal paper with her husband, George Akerloff, by which the left acclaims her to be an expert in the economics of labor and how monetary policy impacts that. In the seminal paper, when you strip out the pomp and the circumstance and the flowery language and everything else, here’s the—and I still remember this vividly. Here’s the essence of the whole thing. If workers feel that they’re underpaid, they will protest by slowing their work and maybe even sabotaging their machines and equipment and tools that they’re given by their employer. Therefore, employers have to give them more. Therefore, because employers only have a finite budget for wages, they can’t employ as many people and you get unemployment. This is the steps of her little proposal. Therefore, what we have to do is print some more money to give employers the means to more.
Then you have full employment because you employ everybody. However, yes, she acknowledges this does cause inflation, but that’s okay because basically the workers are dumb and you get inside their decision cycle. Eventually, the workers are going to demand a raise, and that’s okay because this worked for a while, and then we just print more and repeat the cycle. She actually lays this out pretty much in the terms I just This is the Emperor’s New Clothes stripped of all the fancy advertising and all the fancy packaging and everything else. When you strip it down, this is so… What’s the term? The banality of evil. Was it Hannah Arent? She said that stripped of all everything else, what you see is something that, and I’ve never been a professor of economics, a professor of anything, but if I ever taught Econ 101 and a student wrote an essay presenting this as a solution to anything, I would say at best D minus, if not F, because this is just stupid. And yet this is regarded as brilliant because it serves the goal of what they already knew they wanted to do anyway.
Judy Shelton:
Keith, I think you just gave a great synopsis of that paper. I think you did break it down, and that was the message and the mechanism of how it would work. She does invoke a lot of human psychology, and I think, so is that where this is going? Pop psychology about people. And then I think in the intervening years, when we’ve seen unions say, you’re going to have to really pay us more than cost of living allowance because we see what you do and what you’re up to. I mean, wouldn’t that show that the game’s over?
Keith Weiner:
They just keep kicking the can down the road and extending and pretending, right? It’s never over until the peasants come with torches and pitchforks.
Judy Shelton:
And then maybe that’s what happened this year. I don’t know.
Ben Nadelstein:
So, Judy, question for you. You were nominated to the Federal Reserve Board of Governors and spoke about the need for intellectual diversity on that board. So what types of perspectives are missing at the Fed, and what are some of the changes you would have advocated for?
Judy Shelton:
Well, I have long argued for intellectual diversity, which is the only kind that matters. I just found it… It went between laughable and then disgusting to think that gender, race, or any other considerations should go into deciding who should serve on the board. What you really want are diverse points of view. I might mention two things. One is that the economists, especially the ones in Washington, there’s about 300 who work directly for the Board of Governors. And there was a study done actually by people published by the Independent Institute an academic study, and the political registration was 10 to 1 in favor of those economists registered as Democrats versus Republicans. So right there, what you might call intellectual diversity as reflected by political philosophy. And I think just broadly, you might say those who think government knows best and those who look more to the private sector for solutions to economic or social problems. So that’s an issue. The other one, I think that’s very telling, is that the September 18th Federal Reserve Rate Setting Committee meeting, the FOMC, the Monetary Policy Committee of the Federal Reserve, you had a dissent from Michelle Bowman, one of the seven members of the board of governors, who is one of the 12 voting members, and she did not go with the consensus vote.
She did not vote the same as Chairman Powell. That was the first time in 19 years that a member of the Board of Governors did not go along with the chairman. So it’s almost funny to me that lately we hear this idea of, oh, maybe the incoming President, President Trump, will try to browbeat the Federal Reserve and intimidate them. The power really goes the other way. The Fed has incredible accumulated powers over financial markets and And over the very variables, inflation, unemployment, even saying that they can make the economy either grow faster or more slowly, depending on whether they use stimulative rates versus restrictive rates. And so the Fed has all these powers. But I would say the brow beating occurs on the side of the Fed, where you try to brow beat people into a consensus And I think that has a lot to do with the worst inflation we’ve suffered in 40 years occurring. I think the groupthink is a real problem at the Federal Reserve. And that’s why I think It’s a little bit dangerous now that I see the Fed setting itself up to say, well, we’ll see what an incoming administration elected by 76 million Americans, we’ll see what they want to do as far as lower interest, lower inflation, higher wages, higher growth.
If that fits into our framework, then that’ll be fine. But otherwise, you get this sense that they’re prepared to blunt that pro-growth agenda. And Almost that there’s some rivalry between the White House and our central bank. I think that’s very unhealthy and violates the principles of democratic self-governance.
Ben Nadelstein:
Keith, I want to ask you a question because we know the Federal Reserve says that they’d like to boost the economy or have restrictive rates to maybe put a dampener on the economy. But from my understanding, the Federal Reserve really only has one tool with maybe multiple names, but that is setting interest rates. Why do they think they can do all of these different things from all the way to juicing an economy and making an economy grow, which is just such a complex all the way to, Well, we’ll try to keep unemployment to this range. It feels like someone with a hammer saying, Oh, don’t worry, I can do origami and fix your TV, but the only tool they have is this one thing. Where did they get this sense of, Hey, we can really engineer the economy one way with just one very blunt instrument?
Keith Weiner:
I guess in a short word, I’d say macroeconomics as a field in a way. I’ve made enemies, including including a fellow emeritus at one of the libertarian-ish think tanks in Washington, who’s blocked me on Twitter for saying this, but it’s central planning. There’s an irony that I think everyone realizes that central planning of something like wheat doesn’t work. We laugh at the Soviets, how stupid they were. They tried to central plan wheat. Of Of course, millions of people starved as a result of this attempt. You take this region that’s been fertile for thousands of years, and you think weed is pretty simple because all you need to do is put seeds in the soil that’s already been proven. You just wait for the sun and the rain to do their thing, and then you harvest it. It has a simple annual cycle. It doesn’t have leads and lags of years or decades. Yet, they starved, and it didn’t work. We think we’re smarter than that. Instead, we centrally plan the one thing that has a cycle that even proponents had met, could be decades or years at best. It’s so complicated that any theory that tries to explain it is controversial at best, and it impacts every price in the economy.
It impacts employment, it impacts growth, it impacts inflation, it impacts everything. That’s the thing that we think we can centrally plan. It reduces to this banal thing of, Well, the workers are dumb. We’ll just give them inflation, and then they get full employment. But we get inside their decision cycle. It reduces to these kinds of things when you strip it of all the pomp and circumstance and the differential equations that nobody can read. Why? Well, maybe it’s a convenient illusion that serves the the political powers that be. I don’t know how else to explain why.
Ben Nadelstein:
And, Judy, you wrote a book called The Coming Soviet Crash, talking about why central planning wasn’t work, why this was destroying the Soviet economy. And yet it seems like we took one very important lesson from their system, which was central planning doesn’t work, and applied it to everything except our central bank. So do you think there are parallels there that we be worried about?
Judy Shelton:
I definitely do. And that’s chapter one of my book Good as Gold. Central planning doesn’t work. And I go to the Soviet example because that was my first project as a research fellow at the Hoover Institution, at Stanford. And so that dates me because that was in the mid ’80s, but looking at the internal monetary and financial condition of the Soviet Union. And it’s very telling. Under communism, and Lenin was early to recognize this, he said, We will take big banks ready-made from the Western world because that becomes the architecture of channeling funds from the people up to the government. I had written something for the Wall Street Journal sometime back saying, We’re in danger of becoming like the Soviet banking system. And this was at a time when the Federal Reserve was the primary purchaser of US Treasury debt. And then banks, I think you turn them into utilities instead of having them engage in the noble art of financial intermediaries. Deaciation, channeling that seed corn, that wheat seed, to the people who can figure out how to bring about a greater, more productive harvest so that everybody’s standard of living improves. You lose those productive projects because the banks now, I think, find it much simpler and more lucrative to just engage with the Fed.
I mean, they keep over three trillion sitting in their cash depository accounts at the Fed, earning a generous rate of interest and doing nothing to provide financial resources to the real economy. So I think that’s the problem. And I likewise got in trouble during the nomination process because people said she accused the Fed of being like the Soviet Union. But I think it’s a shame to have banks catering and engaging with the Fed instead of working to provide financial resources to their best and highest use based on valid price signals, which the Fed, of course, interferes with also by manipulating the interest rate. I think free market forces would work better to channel credit to the right places and the right people who are willing to be the entrepreneurs who make something out of it.
Ben Nadelstein:
So, Judy, I have a question based around this. I hear a lot of, Hey, there’s a problem here. The Fed shouldn’t be doing that. They have an impossible job. Their tasks are nonsensical at some point. Sometimes they take things for granted that they truly shouldn’t. But I’m not hearing necessarily a solution. Do you want to go back to the gold standard? We know that didn’t work, Dr. Shelton. So what do you say to critics who say, Listen, what we have right now, yes, there are some booms. Yes, there are some busts. There’s a crisis every now and then. But those are anomalies that the PhD economists at the Fed are working to fix. Going back to a gold standard would be way worse. What do you say to those critics?
Judy Shelton:
Well, I think the first thing you do is find out if they know what they’re talking about. It’s amazing how disarming it is to say, what do you mean by a gold standard? Do you mean when Thomas Jefferson wrote his notes on the establishment of a money unit and said, since we’re going to give Congress the power to regulate the money, and that is said in the Constitution, an Article 1, Section 8, in the same sentence where Congress is told to define the official weights and measures for the country because money was meant to be a measure, Thomas Jefferson said, All right, let’s use the dollar. People were used to the Spanish dollar. But if we’re going to make it a US dollar, then we have to say with precision what a dollar is. Then he proceeded to define it in terms of so many grains of gold and so many grains of silver. Now, that didn’t mean that the government said, Bring us some pieces of paper and we’ll give you gold and silver. They didn’t have it. It meant you, the owner of the wealth, can have the US mint, certify your gold and your silver as this is a true US dollar.
So sometimes people say the gold standard, maybe they mean the classical international gold standard, that would have been at its peak working beautifully from about 1880 to 1913. And that was just when every country defined its currency in terms of a specific weight of gold so that you had a level international monetary playing field. You had fixed exchange rates because everyone was really using the same reserve asset. Every country could increase the level of money and credit available in their own economy. But there was this reckoning that if at any point an individual thought it was getting too frothy out there, too much credit being created without real productive potential behind it, they could convert. So you had this organically-determined, self-correcting monetary system. Or some people think, Well, maybe she’s talking about what we had from 1944 to 1971, the Bretton Woods Gold Exchange Standard. That was different again. You as an individual didn’t have the right to turn in money for gold, but foreign central governments could turn in dollars for gold at a prespecified rate if they thought the US was exporting inflation because it was running a budget deficit. So you likewise had a control, but of a different sort.
What I propose in money meltdown is nothing like that. And I might start by saying, if you just took the outstanding Federal Reserve notes, so that’s paper currency, paper dollars that are out there, that’s already in excess of two and a half trillion. And about 70 % of those paper dollars circulate outside our borders. So if you took the whole hoard of gold reserves owned by the US government, it would be less than a a third of that. It’s worth just around 700 billion, which is no small thing. But you’re not going to let people cash in those Federal Reserve notes, those paper dollars, and the gold is gone. What I suggest is something doable. And I say, All right, that gold has been sitting there valued at $42.22 an ounce for 53 years doing nothing. Why don’t we make it do something for us? Those are the family jewels. We’re in a family emergency in the United States. Even our Federal Reserve chairman now talking about fiscal unsustainability. You now have a commission, the DOGE Commission, to cut expenditures, to try to move us toward a balanced budget, sound finances. Why not issue, and I propose, a 50-year US Treasury bond?
I’m calling them Treasury Trust Bonds, and issue it on July fourth, 2026. It’ll mature on our 300th anniversary, July fourth, 2076. And holders of that instrument, the first official US Treasury obligation based on a gold convertible dollar where the bond holder can redeem at maturity that holding in gold. And that way you use that gold we have as collateral to ensure that no one just sells it off because until we get our house in order, that would just be sending it down a rat hole. I say, do something useful and let that US gold bond be a barometer of whether we’re really moving towards sound finances and sound money. Let treasury issue their normal traditional instruments, nominal treasury securities, and let’s see the rate of return they have to provide to get people to buy it compared to this instrument. This instrument would literally make the dollar as good as gold. And so I’m not suggesting we go back to a classical or Bretton Woods or anything that existed in the past. I’m saying, let’s go back to the future. Let’s use some of the virtues of having money that serves as a dependable store of value, but in a new way.
Maybe we issue stable coins, not we, but maybe people in the private sector issue stable coins that are backed by gold convertible treasury bonds. Let’s come up with some innovative approaches. Let’s magnify the impact. But let’s establish a beachhead and say the goal is to have a dependable dollar and maybe start even questioning this deliberate debacement by the Federal Reserve. Let’s ask Congress if they approve of doing that.
Ben Nadelstein:
Judy, one of the things I notice is when you talk, you always seem so smart and so reasonable, and yet people vehemently disagree with just the suggestion that, Hey, maybe we should try something different because currently, what we’re doing now is clearly not working, whether that’s the debt, whether that’s inflation, whether that’s economic instability, whatever we’re trying right now isn’t working. Are there any historical examples? Maybe we could use some of those virtues. And yet people seem quite hostile anytime you mention gold, treasury trust bonds. But I have a question. Alan Greenspan, despite his early writings that actually did discuss the benefits of gold, faced relatively little resistance during his tenure. In contrast, your nomination drew significant opposition. So why do you think that stark difference exists? Do you seem smart? Do you seem intelligent? Do you have the degrees to back it up in the books that explain your reasoning? And yet people make you out to be some monetary crank. So why do you think there’s such a difference in treatment?
Judy Shelton:
I might just say Alan Greenspan gave me great comfort during the process because I could email him the worst of the columns written about my representing the right wing fringe group of gold bugs. And he would email back and say, I remember one, particularly, he said, If gold is so worthless, why does the US government hold so much of it, and as do other major governments? So he was always a comrade in arms, intellectually, and I have great respect for him. The piece you’re referring to that he wrote in 1966, it’s in an Ayn Rand compendium of books. I think it was Capitalism, the Untried Ideal.Unknown Ideal, yeah.Unknown Ideal. Thanks, Keith. And That is a radical article. I taught international finance in Mexico as a visiting professor for a few years, and I always gave that paper to my students to read with the author, White It Out. And I would say, Who do you think wrote this? And this is when Greenspan was still the chairman of the Federal Reserve. And my students thought, Oh, this person’s a radical. They’re anti-government. They’re almost crazy. And then I would say, this is our button down banker, the chairman of the most powerful central bank in the world.
Now, Greenspan, you ask why maybe he was more acceptable to the Wall Street and Washington communities He had a consulting firm, Townsend Greenspan, very well respected on Wall Street. He had served as the head of the Council of Economic Advisors for President Ford. In 1981, Reagan had a gold commission, and Greenspan testified. Reagan had said prior to being elected that he thought the dollar needed to have some gold backing, and he would seek that because he said His first priority as President would be to make the dollar the most trusted currency in the world. In 1981, Greenspan wrote a piece in the Wall Street Journal calling for gold bonds. He thought it was a good idea. He was around and known to people in Washington, and he was appointed to head the Fed in 1987, following Volcker. I just think that they were closer to the times when when gold was discussed as perhaps something that we should get back to, because everyone remembered the ’70s and the end of the Bretton Woods system and the inflation that followed in the late ’70s as something extremely disagreeable and painful to recover from. Whereas I think Greenspan, who testified before Congress, he was trying to duplicate what would happen under a gold standard when he was chairman, and we had the great moderation, pretty low inflation for quite a long time.
He was there almost 18 years. I think that it was still acceptable to talk about gold in academia. That is, Paul Volcker and Greenspan or Bob Mundell. I could talk with them at conferences about monetary policy and gold. They were very conversant in that. But we had gotten spoiled in Washington and the public. We weren’t scared of inflation anymore. And after Greenspan left in January 2006, the following year, he was asked by David Asman at Fox Business, Why do we even need a central bank? And shockingly, he said, That’s a very interesting question. And he ended up saying, There are many of us, he said, myself included, meaning myself, Alan Greenspan, who think we did very well under the classical international gold standard without a central bank. So I don’t think he ever changed his intellectual views, but he squelched them enough and accomplished his same mission of having pretty low inflation throughout his time at the helm, although he later was blamed for 2008, even though he’d been gone two years.
Ben Nadelstein:
Judy, one thing you mentioned in your treasury trust bond proposal, which I think might stick out to some people listening is that you said these would be 50-year bonds. Now, most people today in the financial sector think about two-year bonds, five-year bonds, one year, or maybe 10 years at maximum. But can you talk about why a 50-year bond, A, is so historical and important, but just what it means to have a bond with such a long time horizon that many financial investors are just not used to seeing?
Judy Shelton:
Well, France has 50-year bonds. It’s That’s not unknown. And certainly in our country, we’ve had 50 and even 100-year bonds for railroads and such, and European countries have. When I was working on the transition team in 2016 and was assigned to Treasury, I was really more the lead advisor on international issues, but it was suggested to the Treasury that they should explore a 50-year bond. We have 20-year and 30-year treasury bonds because some investors might want that. And so I know they looked at it and just decided maybe we won’t do it. But it was definitely considered as a serious proposal, not goal-back bonds. But I mean, the time, I don’t think is that out of the realm of possibility. I think it’s reasonable to consider a 50-year bond. But it doesn’t mean that you couldn’t have shorter duration, interim notes and even bills, but probably notes. I think that if the US government officially did this bond, I mean, some people would say, Okay, big deal, so it’s redeemable in gold. Others would say, this is outrageous. The US having anything, an official treasury offering in gold. They would try to defeat it. But you could have, I’m thinking that private companies could put together something comparable.
If there’s demand for this instrument, which is necessarily delimited because of the value of our gold holdings and how much you could issue against them, especially at the pre-established fixed rate of convertibility. But if it’s popular, then I don’t see why private funds couldn’t bundle together traditional treasury securities with gold futures contracts. They could be for much shorter durations, for two years or five years. But if it turns out investors like that a instrument, it’s comparable to a TIPS bond, to a treasury inflation-protected security, and that you’re going to get compensated if it turns out that there’s a reduction in your purchasing power. It’s just that on a TIPS bond, you measure that reduction in purchasing power by the CPI, the consumer price index, and you get basically compensated based on that metric. A treasury trust bond is doing the same a return to the investor. It’s just this is an investor who says, I don’t want to lose purchasing power by buying the dollar-denominated instrument. And then by the end of the bond, the dollar’s worth so much less than I anticipated. If I know that I can also have a pre-established amount of gold, then that’s the way I get compensated.
And I’ll use gold as a surrogate for the real economy or for commodities. But I choose that form of insurance against the decline in the value of the dollar.
Keith Weiner:
One thing I can say, you know what we do. We actually issue gold bonds. That’s what Monetary Metals does. And I can say it’s a very big deal, and there’s a lot of investor demand for it. If the US government were to do something like that, the reaction would be thunderous. But unfortunately, politically, I think, and this is going to be my comment when you’re talking about why Greenspan was accepted for saying a lot of the things that you said later, the Overton window moved. To say the word gold today, you’re outside the Overton window. Was it Noam Komsky said, The way you have tyranny is you allow vigorous debate, but only in a very narrow spectrum. Something like that. I’m not a big fan of Komsky, but that’s what’s happened. The Overton windows moved so far that to say the word gold is like a four-letter word.
Judy Shelton:
And here I was thinking of Gandhi. I gave a speech in New Delhi in September, and what I said is his quote was, First they mock you.
Keith Weiner:
First they ignore you, then they mock you, then you win.
Judy Shelton:
First they ignore you, then they mock you, then they fight you, then you win.
Keith Weiner:
Right.
Judy Shelton:
And even Milton Friedmann said, Things are impossible until they become inevitable. And so I’m amazed that I hear people, actually, I see Senator Mike Lee challenging the constitutionality of the Fed. I think that Overton window maybe is reopening because of this new emphasis on sound finances and sound money. And the fact that you say there’s investor demand for gold bonds, I mean, that’s the exact message. I would want to bring people like you in to talk to the Treasury Secretary, because when we got Treasury Inflation Protected Securities, it was an initiative under Robert Rubin. It was just a way to provide investors with an alternative type treasury instrument. There’s different. There’s an array of treasury instruments you can buy. And even if you issued this 50-year bond against all of our gold holdings, that wouldn’t be the smallest category of treasury debt out there. They did the floating note issuance in 2014, and it’s worth about 600 billion, is the outstanding amount, I believe. So this would be bigger than that. I see that as the benchmark, and the US government doing it, that’s also a signal to other governments to do something. My real goal is international monetary reform and back to that level monetary playing field that we had under Bretton Woods and under classical international gold standard, because that was a good thing.
That is what supported the logic of international trade. Why? You can’t have free trade if people are manipulating currencies. I I’m a free trader, but only under the condition that you can’t cheat by changing the way you measure value. So I think that to save international trade, we need to think about establishing this level international monetary playing field. It doesn’t have to be gold as a reserve asset, but why not? The central banks already have it. So many governments could issue sovereign instruments. But, Keith, you could come in and tell the new Treasury Secretary, there’s demand for this. People want that investment.
Keith Weiner:
Happy to give me a call. I’ll be happy to come and do that. I was going to say there’s a quote from Winston Churchill, which is it’s one of those backhanded compliments in a way for which he was, I think, fairly famous when he said, God bless the Americans, because after they’ve tried everything else, they’ll do the right thing. Something like that was the spirit of it. I use this quote in my own talks and whatever, which is basically, after we’ve tried everything else, we’re going to try gold again because nothing else really works.
Judy Shelton:
I think it does apply, and I’ve heard him, Churchill. It was attributed to Churchill to say, democracy is the worst form of government in the world, except for all the others.
Keith Weiner:
Yeah.
Judy Shelton:
And you could say the same about a gold standard, because let’s face it, countries go off it during times of war. It’s definitely impacted by supply and demand. But that wasn’t a problem when you had a gold standard and then there were new supplies of gold discovered, whether it’s California or Australia, you still, over the long term, had price stability. So somehow the market is able to absorb it, even though you can have increases and decreases in the value based on the level which can be influenced by unforeseen events. I think I would take that compared to if the Federal Reserve and using fiat money where the supply is supposedly determined German by a dozen people meeting eight times a year in Washington to not only… They don’t engage in open market operations like they used to with Volcker. Now they just give administered rates. They tell banks, this is the rate of interest. This is what you have to… We will pay you this on your cash accounts, and then that becomes the floor of our interest rate target zone. And it’s by dictat. They just say, This is the administered rate. We don’t even engage with you.
There are no required reserves. Nobody’s scrambling to borrow overnight from other banks. All of that’s gone. Since 2008, they just do it by paying interest on reserve balances. I think that mechanism is extremely faulty and damaging. But if the whole purpose of having a Fed was to avoid breakdowns, like people could say, happened under a gold standard, how do we explain 2008? What organization was more responsible for the level of money and credit out there than the Federal Reserve? So if it didn’t save us from a global financial meltdown in 2008, then what is the great virtue of having this system, which we’ve been comparing to a Soviet-style central planning agency?
Ben Nadelstein:
Judy, I can’t of a better place for us to close. Where can people find more of your work, order your book, and get all things Judy Shilton?
Judy Shelton:
Well, it’s very nice. If they’re interested in the book, the royalties go to the independent Institute, where I’m a senior fellow, and on their website, independent. Org or on Amazon. It’s doing very well. I like to see. I do check that on Amazon in the categories of money and monetary policy and economic policy and economic theory. So just get it on Amazon or go to even on X and go to the independent institute X platform, and I’m sure you can order it there. But thank you for asking.
Ben Nadelstein:
It’s been a pleasure talking with you. CEO Keith Wiener, thanks so much for your insights as well. And I’m sure there’ll be lots more Monetary Mischief, and we’ll have to have you back on.
Judy Shelton:
Thanks so much. A pleasure.
Additional Resources for Earning Interest in Gold
If you’d like to learn more about how to earn interest on gold with Monetary Metals, check out the following resources:
In this paper, we look at how conventional gold holdings stack up to Monetary Metals Investments, which offer a Yield on Gold, Paid in Gold®. We compare retail coins, vault storage, the popular ETF – GLD, and mining stocks against Monetary Metals’ True Gold Leases.
The Case for Gold Yield in Investment Portfolios
Adding gold to a diversified portfolio of assets reduces volatility and increases returns. But how much and what about the ongoing costs? What changes when gold pays a yield? This paper answers those questions using data going back to 1972.
Hello
Funny!
On one hand, it would be a great achievement for KW.
On the other hand he might not enjoy to have Big Gov as competitor.