Shelton Over Kelton
Judy Shelton and Stephanie Kelton; one was denied a congressional appointment to the Federal Reserve because she asked questions, the other found reward by telling the establishment exactly what they wanted to hear. Last week Judy Shelton published an article in the Wall Street Journal that was nothing short of honest, aptly titled: Congress Needs to Rein In a Too-Powerful Federal Reserve.
Opening with a mention to banks, money managers, and other investors who hang on to every speech from the Fed, looking for clues as to what their actions mean for their portfolios. She quickly answers the question: What about everyone else?
But for people who live off paychecks rather than portfolios, the game of deciphering Fed officials’ intentions is a sideshow that leaves them further behind. This is no way to run monetary policy. Our nation’s central bank has become too prominent, too political and too powerful.
It doesn’t require a PhD to understand. When the Fed unleashes trillions of dollars into the market and holds interest rates low, the benefit goes to those who are able to get this new money first. This goes into the bond, housing, and stock market pushing prices up. The Fed has never clearly explained how they think this helps people working outside of the financial industry.
Shelton confirms the influence on assets and interest rates:
The Fed’s ability to purchase massive quantities of U.S. Treasury securities is the dominant factor influencing interest rates across the board and thus the valuation of financial assets… What would that benchmark yield reveal if Fed purchases weren’t distorting the market?
Her technical acumen is always impressive:
The Fed’s prominence not only undermines supply-and-demand interactions for accurately pricing the cost of investment capital; it also compromises the relationship between fiscal and monetary policy.
For a long time, the relationship between fiscal and monetary policy has been blurred. With Congress unveiling multi-trillion loans every few months, spending amounts well over tax revenues, there is no question that the Fed funds the nations’ fiscal policy through asset purchases.
Meanwhile, the Fed continues to accumulate those assets—its current $8.33 trillion balance sheet total equals 37% of U.S. gross domestic product.
What resonated most was when she discussed lower income workers and minorities. All too often the Fed mentions them as a talking point, noting their existence, but little else about the financial problems they face. Whereas Shelton gives the answer:
…Mr. Powell laments that “joblessness continues to fall disproportionately on lower-wage workers in the service sector and on African-Americans and Hispanics” …the Fed’s solution of buying Treasury debt and agency mortgage-backed securities seems ill-suited to the problem. It hardly improves the financial prospects of those not invested in rising equity markets. It doesn’t make today’s median-priced $374,900 home more affordable, even with rock-bottom mortgage rates.
Unfortunately, Shelton had her shot… But Republicans like Mitt Romney and Susan Collins voted against her appointment. She never had enough votes and was not appointed to the Fed’s Board of Governors.
Reading the quotes above, could anyone confidently stand up and say that they disagree with her ideas?
Of course, there is Stephanie Kelton. Ironic as just a few days after the Wall Street Journal article, Kelton was named as “One of the Most Creative People in Business” by Fast Company. This is a magazine which caters to “progressive business leaders.” Her university published the article, where they discussed the Covid spending bills. Kelton noted the relief efforts of:
…$5 trillion with no problem and no tax increase.
In the article, Stephanie Kelton likened herself to an eye doctor who corrects people’s vision:
If I’m an optometrist, my job is to fix your vision… I just fix your eyes. That’s how I think of my role as an educator.
Makes sense. But where does one go when the doctor suffers from severe myopia of both economic history and reality?