Gold is back, and so is Judy Shelton

Gold is on the rise, and so is the typical trend nostalgia on the gold standard that has broken out every time price inflation, banking crisesand/or worries about debt have resurfaced after the fall of Bretton Woods gold exchange standard in 1971. Certainly, the rise of the precious metal indicates, as usual, that all is not well.

Earlier this year, the precious metal soared over $2500 per ounce to record price levels, making it one of the best performing assets of 2024, following a price gain of 13 percent in 2023 – the result of persistent economic and geopolitical uncertainties. Perhaps more interesting is that the World Gold Council reports that central banks have been the most aggressive buyers of the precious metal, buying 1,037 tons of gold in 2023 alone – the second-highest annual purchase in history – after the record high of 1,082 tons in 2022. A survey by the In fact, Gold Council found that 29 percent of central bank respondents planned to increase their gold reserves in the coming year – the highest percentage since the World Gold Council started this investigation in 2018.

A recent one part in The times (from London) sums up the moment:

It seems that gold can no longer be ignored. The prospect of falling US interest rates, a decline in the dollar and concerns about the sustainability of US debt should lead to more institutional and retail money flowing into gold… There is even talk that the long-discussed new currency, set up by the expanded Brics countries, are backed by a number of assets, including gold. A century after the demise of the (classical) gold standard, which collapsed in the interwar period due to a failure in cooperation between central banks over the management of the metal, gold is quietly becoming a more important feature of our financial system than an old-fashioned one. Relic from the 20th century.

All this has led to a lot of talk about sound money, cryptocurrencies and even its feasibility a new gold standardas evidenced by the last title of Judy Shelton, former economic advisor to the Trump administration and long-time advocate of sound money –Good as Gold: How to Harness the Power of Sound Money-currently a bestseller on Amazon.

Shelton, on the phone from Paris, returning from a recent meeting of the Mont Pelerin Society in New Delhi – the free-market economics conference founded by Friedrich Hayek and Milton Friedman – remains surprisingly optimistic about the precious metal’s monetary prospects, despite numerous setbacks in the past fifty years.

“We to have the gold,” she says, pointing to the US government’s reported holdings of 261.5 million ounces – more than any other country. “Why not use it?”

An inveterate one champion of sound moneyShelton argues that the current moment is particularly opportune, especially at the international level. The fact that gold buying by central banks has reached a near frenzy “shows good prospects for serious consideration of a new proposal,” she says.

And of course she has one: a well-articulated plan to reaffirm the convertibility of gold to the average American for the first time since the days of the United States. Classic Gold Standard (1815-1914); albeit exclusively through ownership of gold-linked US government bonds. For Shelton, the right to dollar-to-gold convertibility – her end goal for the entire US monetary system – is essential: it would not only be a sign of fiscal and monetary rectitude; it “provides the ultimate simple rule for regulating the money supply in accordance with individual rights and free market principles,” one of the book’s main arguments.

Her proposal calls for a new issuance of zero-coupon government bonds – called Treasury Trust Bonds – that offer lower interest rates than conventional government bonds (reducing current deficits), but with the distinguishing feature that they can be redeemed at their face value at maturity are repaid. in dollars or against a pre-specified gold equivalent – ​​at the buyer’s discretion.

In other words, if monetary policy continues on its current derailed path and the purchasing power of the dollar declines significantly, this could result in a significant loss of US government gold. If that is not the case, and the United States gets its finances in order, most bonds would probably be redeemed in dollars. Essentially, they would provide what Shelton calls a “trust-but-verify” provision, making the country’s gold holdings contingent on a new decision to demonstrate fiscal and monetary probity. “All officials need to do to make the issuance a success is exceed expectations,” she explains. If they do, the bonds will have led the way “for the United States to issue a dollar-denominated financial instrument that is literally as good as gold.”

Recognizing that her proposal seems modest compared to the “impressive gold standard proposalShelton argues that by successfully establishing this kind of “sound money beachhead” and “bulwark for fiscal and monetary integrity,” substantial monetary reforms here and abroad would likely follow. which even resulted in a new gold-based international monetary system.

In that case, the Federal Reserve’s power would obviously have to be significantly curtailed. Shelton describes her economic views as “closer to those of the Austrian School than others”, despite her long association with proponents and supply-side theory, and agrees with the Austrians that the fatal flaw in Bretton Woods (1945-1971) and countless other rules-based proposals is that they ultimately depend on the “discretionary tendencies of technocratic authorities.” She even acknowledges that the classical gold standard of the late nineteenth century was “much better” than the watered-down gold exchange standard of Bretton Woods (which denied individuals direct convertibility) due to the fact that “it gave individuals, not the government, the power to control the money supply.”

Moreover, the new book makes clear that 1) central planning does not work and never has worked, neither in the old Soviet Union nor in modern central bank policy; and therefore that 2) the Federal Reserve’s “displacement of free market outcomes could one day produce the same kind of cynicism that caused the Soviet approach to collapse.”

The bottom line for Shelton is that “the highest level of performance a central bank could aspire to would be to match the economic interactions and outcomes that would likely occur under a gold standard,” an argument her book makes by drawing on the results of previous to investigate. monetary systems. Alternatively, she adds, referring to Hayek’s best known book“Replacing the acumen of designated monetary authorities with the shared insight of hundreds of millions of people who engage in voluntary transactions to facilitate their daily needs and future dreams is tantamount to choosing the road to serfdom.”

In short, while Shelton’s new plan might just be another new plan less than ideal monetary reformsit would certainly represent a positive step in the unequivocal direction of sound money; and possibly with some real teeth, as she outlines Good as gold. Perhaps it will even stoke grassroots enthusiasm for real monetary freedom, the reason she hopes the bonds will be inaugurated in 2026, the 300th anniversary of the Declaration of Independence.

The new book presents such a robust and articulate defense of free-market capitalism in the context of American history and its founding principles that one wonders whether the prospects for sound policy today are better because Judy Shelton was prevented from joining to become the Federal Reserve in 2020 and instead continues to unapologetically lay out its sound money message.

With the new book, Shelton has doubled down on everything that marked her as a member of the organization “Crank-right edge” and resident of the “gold bug circuit” by mainstream writers and analysts in 2020. And her Treasury Trust Bond plan — and a larger vision of sound money — will be successful, she says, if it moves the nation toward a future where “payment in future dollars is literally as good as is deemed’. gold.”

“That,” she says, “would be historic.” It certainly would be.