Topic
The outcome of this year’s Presidential election in the United States will likely have a very significant and very long-lasting impact on our financial futures. The Democrat and Republican candidates, Harris and Trump, differ on virtually every conceivable subject, and that certainly includes the subject of economics.
One of the most important economic policy steps that any President takes is that of appointing the Chairman of the Federal Reserve, the central bank of the US. Gold investors may want to pay attention to who is likely to be the next Fed Chairman, depending on who wins the election, as the two main candidates to head the Fed are just as far apart in their thinking as the two Presidential candidates are. And it doesn’t require rocket surgery to figure out that the Federal Reserve’s monetary policy moves over the next four years are bound to have a substantial effect on future gold prices.
With that in mind, let’s take a look at the two ladies who are rumored to get the nod as the next Fed Chair: if Harris wins, Lael Brainard – or if Trump wins, Judy Shelton. Brainard and Shelton stand at opposite ends of economic theory. Brainard subscribes to Modern Monetary Theory (MMT), which is essentially the child of Keynesian economics. She sees no problem in having a government-authorized counterfeiter – i.e., the Federal Reserve – printing endless reams of dollar bills. In contrast, Shelton is a classical economist and a fan of real money – i.e., gold – and has long been an advocate of returning to the gold standard.
The person currently favored to be named Chair of the Federal Reserve, if Vice President Harris wins the Presidency, is Lael Brainard. I’m tempted to say that you’ll know all you need to know about Brainard just from her May, 2024 remarks as National Economic Advisor to President Biden: “Following the economic devastation during the pandemic, the U.S. economy has come back strong…the best labor market in 50 years and gains in real purchasing power and wealth for the middle class…unemployment and inflation are down.” In short, Ms. Brainard either doesn’t appear to have any problem with lying through her teeth about the economy, or perhaps she’s simply blind as a bat about the current reality of the US economy. Either way, it might be a little on the high side of terrifying to think of her directing US economic policy for the next four years.
With nearly 30% cumulative inflation since 2021, the “economy has come back strong”? Unemployment is down, and we’ve got “the best labor market in 50 years”? – Uh, no, none of that is true.
Brainard makes her position clear with her continuing remarks, “The fundamental economic policy choice that lies ahead is whether to return to the Republicans’ failed trickle-down approach or forge ahead with the President’s proven plan to grow the economy…tax policy in 2025 should raise revenue…”. Translation: Let the Trump tax cuts expire, raise taxes, and continue with the allegedly “proven” economic plan that has led to the highest inflation rates in 50 years. Her economic “brilliance” (yes, I’m being sarcastic here) is perhaps well illustrated by her insightful statement that, “… clean energy investments are growing fastest in energy communities…”, whatever the hell that means.
Brainard was originally appointed to the Federal Reserve Board of Governors by President Obama, in 2014. President Biden made her Vice Chairman of the Federal Reserve, serving under Fed Chair Jerome Powell, in 2022. She resigned in early 2023 to take the position of Biden’s Director of the National Economic Council (NEC). She has generally been considered an interest rate dove, more inclined to lower interest rates than to raise them, but is not averse to raising rates in order to stem inflation.
It's worth noting that Brainard has also been significantly involved in working on the development of a Fed-issued CBDC.
So, what’s likely to result from having the Fed led by Brainard? – I’d guess just more of the same of what we’ve seen over the past four years – increased taxes, increased government spending, increased debt, increased money printing, and increased inflation. And what’s happened to the price of gold over the past four years? – It’s gone from $2,000 an ounce to $2,500 an ounce. Therefore, I would expect that continuing the current Administration’s policies would continue to drive gold prices higher, as the purchasing power of the US dollar continues to decline.
Standing in sharp contrast to Lael Brainard is the lady rumored to be Trump’s likely pick to chair the Fed – Judy Shelton. She was a key economic advisor to Trump during his former term as President, and was nominated by him to chair the Fed in 2020. However, Senators who strongly opposed her views, which are outlined in her latest book, “Good as Gold: How to Unleash the Power of Sound Money”, in which she advocates a return to the gold standard, were able to stall her nomination until Trump was ousted from the Presidency. When Biden took office, her nomination fell by the wayside.
Shelton, a Senior Fellow at the Independent Institute and former Chairman of the National Endowment for Democracy, has long been a proponent of returning to the gold standard, arguing that doing so would impose fiscal discipline on the federal government and prevent inflation, thereby stabilizing and supporting the economy. That’s essentially the argument commonly presented by all advocates for the gold standard.
In July of 2024, Shelton noted in a CNBC interview how, during the Trump Administration, the Fed kept raising interest rates multiple times, despite the fact that inflation remained below the Fed’s stated target of 2%. This put Trump at odds with the Fed, which appeared – by its interest rate policy actions – to be trying to stifle an economy which was doing quite well, with low inflation, low unemployment, and real wage growth. Shelton has elsewhere stated her belief that the Federal Reserve has become both “too political” and too “powerful”.
She doesn’t pull her punches in her criticisms of the Fed. She’s gone as far as stating that central banks “are the world’s biggest currency manipulators”, and likening the Federal Reserve’s operation to the central economic planning of the former Soviet Union. Shelton has further stated that, as she sees it, the people who oppose curtailing any of the Federal Reserve’s power also appear to be against enforcing any sort of rules for the Fed’s operation.
Shelton has publicly challenged the desirability of the Fed’s oft-stated inflation target of 2%, stating her belief that a proper inflation target would be 0%. She has also challenged the idea that there’s actually any need at all for the nation to have a central bank. However, seemingly somewhat contrary to that thought is the idea that Shelton has floated of having a global gold reserve bank and a gold-backed worldwide trade currency.
If Shelton were installed as the Chair of the Federal Reserve, that would, theoretically, give her the necessary power to return the nation to a gold standard. However, it’s questionable whether, speaking in practical terms, she could actually pull it off. First, there’s the question of whether Trump would support such a move. Maybe he would, maybe he wouldn’t – I don’t know. Second, a much larger practical difficulty would likely arise in the form of a mob of free-spending Washington politicians in both parties who would fiercely oppose such a move. Members of Congress have never liked the idea of anyone attempting, in any way, to curtail their practice of operating the federal government as if it were an endless supply of blank checks to write and hand out to their political friends.
A return to the gold standard has to be a mouth-watering prospect for gold investors, as it would likely mean an overnight 10x or greater increase in the per ounce price of gold – like, for example, gold going from $2,500 an ounce to $25,000 an ounce. That’s because imposing a gold standard requiring that the nation’s currency be at least 40% backed by gold (that was the requirement before Nixon torpedoed the Bretton Woods agreement and abandoned the gold standard altogether in 1971) would require a huge revaluation of the nation’s gold reserves.
Longtime gold bug and financial market analyst, Jim Rickards, explains how such a massive revaluation of gold might happen. By the way, it’s interesting that both the US and many other countries hold their gold reserves in what’s termed a “revaluation” account. It kind of looks like they’re actually hinting that they know they’re going to do a major revaluation of gold at some point. That idea is certainly supported by the feverish pace at which central banks across the globe have been buying up gold at an ever-increasing rate over the past several years.
Anyway, Rickards looks at the nation’s M1 money supply, which he pegs at currently being roughly $17.9 trillion. Okay, if you apply a 40% gold backing rate requirement to that figure, then the nation needs about $7 trillion in gold reserves to meet that requirement. How would it manage that? – Well, by revaluing gold so that the total gold reserves that the US has on hand – currently about 260 million ounces – would equal approximately $7 trillion dollars. Here’s the calculation, according to Rickards:
It certainly would be nice to wake up one morning and find out that all the gold you own is worth 10 times more than it was when you went to bed the night before, wouldn’t it? 😊 There’s a cautionary note here for investors – “Buy gold NOW”. Why? Because if such a gold revaluation were to happen, then it would, indeed, likely happen overnight, just as it did when President Franklin Roosevelt revalued gold from $20 an ounce to $35 an ounce in the 1930s. Investors who decide to adopt a “wait and see” attitude could wake up to see that they missed the boat, that it was too late to get in on the massive profit opportunity arising from the nation returning to the gold standard.
The idea of the country returning to the gold standard and a consequent gigantic increase in the value of gold might seem farfetched. But, in fact, it’s an idea that has been seriously discussed by prominent economists for decades. Revaluing gold at such a high price would help nations such as the US significantly improve their financial position because the massive increase in the value of the country’s gold reserves would massively increase the value of its total reserves, thus putting the US government in a much stronger financial position relative to the country’s current $35 trillion national debt.
Oh, by the way, Rickards and other analysts theorize that gold at around $25,000 an ounce would likely put silver somewhere in the neighborhood of $500 an ounce. As one of the oh-so-patient silver investors, I’d love to see that.
The good news for gold investors is that either of these two Fed Chair scenarios portends higher gold prices. If Harris is elected and continues the policies of the Biden Administration, with Brainard as her head of the Federal Reserve, then we’re likely to see continuing inflation and an ever-growing national debt, both of which will, in all likelihood, continue driving the price of gold higher - just like we’ve seen happen for the past four years. Alternatively, if Shelton were to gain control of the Fed and implement a return to the gold standard…well, I just laid out for you how that could moonshot the price of gold overnight.
Personally, regardless of whether she could successfully pull off a return to the gold standard, I’d rather see Shelton sitting as the Fed Chair – someone who at least has respect for real money and is significantly less inclined to just operate the Federal Reserve as the US Mint’s printing press. I just think that would bode well for the economy overall. But, hey, that’s just my opinion.
There are, of course, a large number of scales on which to weigh the desirability of any Presidential candidate. But I think that consideration of the probable economic policies of the next Presidential Administration is certainly one of those scales for evaluation. Hopefully, we will all perform our own honest and thorough due diligence in choosing whom to vote for – and, hopefully, the end result will be the best one possible for our nation’s future.
Sources:
https://thesilverindustry.substack.com/p/a-little-story-about-a-little-shiny
https://www.youtube.com/watch?v=Xj2OM8Nu4YQ&t=291s
https://www.federalreservehistory.org/people/lael-brainard
https://en.wikipedia.org/wiki/Lael_Brainard
https://www.youtube.com/watch?v=0vuMdanj_xk
https://www.wsj.com/articles/judy-shelton-in-her-own-words-11562111336
https://en.wikipedia.org/wiki/Judy_Shelton
https://finance.yahoo.com/video/fed-become-political-could-swing-220000866.html
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