Sixteen months ago, in the pre-coronavirus summer of 2019, President Donald Trump announced his candidates to fill two vacancies on the Federal Reserve Board of Governors. The nominations, formalized in January, languished in the Senate for months. Now, suddenly, Senate Majority Leader Mitch McConnell wants to cram one of them—but only one of them—through the Senate.
One of the nominees is a conservative with extensive central-bank experience, broadly respected by monetary-policy experts. The other campaigned for the job from the lobby of the Trump International Hotel in Washington, D.C., and is widely regarded as a hyper-partisan extremist.
Guess which nomination McConnell is now advancing, and may bring to a vote as early as the end of this week, possibly even this very day?
The nomination that has gone cold is that of Christopher Waller, the current director of research at the Federal Reserve Bank of St. Louis.
The nomination that McConnell has suddenly taken up again is that of Judy Shelton.
…Shelton is noted for her decades-long advocacy of fixing the value of currencies to gold. In 2009, for example, she wrote in The Wall Street Journal :
Now is the time to challenge the exclusive monopoly of Federal Reserve notes as currency. Buyers and sellers, by mutual consent, should have access to an alternate means for settling accounts; they should be able to do business using a monetary unit of account defined in terms of gold.
Advocates of the gold standard often talk about consent and convertibility—the ability of economic actors to switch back and forth from dollars to gold. But that is disingenuous. Americans or anybody else can go to market with every last dollar they own and buy as much gold as they wish. What gold-standard advocates mean by convertibility is that private citizens should be free to convert their dollars into gold at a price set by law, rather than by the marketplace. Congress would pick a price for this one commodity, and then the central bank would forever after raise or lower interest rates to squeeze the dollar into alignment with the price of gold.
That’s how things were done in the United States from 1873 until 1934, when the domestic gold standard was finally abandoned after causing one horrific economic depression too many.
…As one governor among seven, Shelton could do meaningful, but finite, harm. But right now, there are two vacancies on the board. If Shelton is confirmed, she will be one of six, not one of seven. And what if Republicans preserve their majority in the Senate after 2020, and McConnell then decides to extend to the Fed the same no-nominations-by-Democratic-presidents rule he formerly enforced on the federal courts? Richard Clarida’s term on the board expires in the spring of 2022. Shelton will then be one of five. Powell’s term as Fed chair expires early in 2022. If not renominated as chair, Powell may quit the board altogether. Shelton would then be one of four.
Could McConnell embargo the Fed as he has embargoed the federal courts, with a view of paralyzing monetary policy in order to hurt Democratic chances in the elections of 2022 and 2024? No such thing has ever happened before, but since McConnell gained the leadership of the Senate majority in 2014, it’s been one instance of no-such-thing-has-ever-happened-before after another. For all their many points of friction, McConnell and Trump have had one point of unity: a deep conviction of the non-legitimacy of government by the other party. That conviction was sharpened on the courts. Is it now to be perfected at the Federal Reserve, with the American economy joining American law and justice as McConnell’s hostage?