The Biggest THREAT to the Dollar Is Washington Itself | Judy Shelton
Summary
Fed Policy Shift: Anticipated Kevin Warsh leadership suggests a supply-side orientation, balancing QT via balance-sheet reduction with potential policy rate cuts.
US Dollar: Emphasis on a dependable, stable-dollar framework; detailed discussion of currency swaps as tools to maintain dollar liquidity and reinforce dollar dominance.
Fiscal Discipline: Strong advocacy for a balanced budget as the key risk mitigant for the dollar and broader markets, including potential constitutional avenues via states.
US Equities: Positive remarks on strong corporate earnings and a pro-growth policy mix, with references to potential 3–6% growth supporting equity performance.
Risks: Concerns about Fed politicization, interest-on-reserves as a subsidy to big banks, and the macro threat from sustained fiscal deficits.
Gold Reference: Preference for linking the dollar to gold for purchasing-power stability was noted, though not the main investment focus.
No Specific Tickers: The conversation remained macro-focused with no single-company pitches or sector-specific recommendations.
Transcript
Too powerful, too prominent, and too political. When you have the chairman of the Fed making a ridiculous video as he did, and no one, certainly not the Federal Reserve chairman, is above the law. We should have money that is trustworthy. We earn it, and it should maintain its value. A lot of things happening at the same time right now. Of course, we have the situation in the Middle East. We have the US delegation visiting China this week as well, and there's changes at the Fed. What does that all mean though? We are investors, we want to know, we want to understand the macro so we can handle the micro. So, I've invited back Judy Shelton. She's a senior fellow at the Independent Institute, and I'm really looking forward to getting her insight. She has a direct line into the White House, and she has a direct line to the to the government, so we can help or she can help us understand, okay, what is really happening? What is happening behind the scenes? And is a 50-year-old back bond potentially being introduced here on the 250th anniversary of the United States? We'll we'll have to discuss that, of course, as well. Really looking forward to the discussion with Judy, but before I switch over to my guest, quick reminder, hit that hit hit that algorithm button, hit that subscribe button, hit that like button. We It means a lot to us, and we really really appreciate it. Now, Judy, it's a great pleasure to welcome you back on Soar Financially. Thank you so much for joining us again. It's my pleasure to be with you. Thank you. Yeah, really looking forward to this discussion. As I mentioned, there's a lot happening, a lot of a lot of [snorts] things are happening simultaneously, and have a hard time like structuring even the conversation because there is so much to discuss, but maybe we'll start with the Fed. Maybe the easiest topic out of the way first. Kevin Warsh, he's passed the hearings. There I think there's one final vote left. What what do you make of the situation right now at the Fed? And what direction do you expect the Fed to take post May 15th here? Well, I I know the scuttlebutt is kind of oh well, the inflation numbers are not looking so good. Therefore, he shouldn't try to reduce rates right away. I think that goes to this issue of the Fed's model. Because if you walk through, what is the purpose of continuing to pay high interest rates to commercial banks so that they keep a high level of reserves sitting at the Fed doing nothing to finance productive activity. How is that helping on inflation? So, I think we have to go back to or go forward under Kevin Warsh toward a supply-side economic orientation for those Fed models that does not equilibrate economic growth with with needing to impose restrictive rates and does not think that high employment is a bad thing, but instead recognizes that the way to fight inflation is to increase supply. And you don't do that by making it hard for small and medium-sized businesses to borrow. You don't do it by locking them out of of getting loans. Access to capital is part of that that formula. So, I think what Kevin Warsh can do is is two things at once. That is he can reduce the Fed's footprint by selling off portions of its portfolio. But of course, that's the opposite of quantitative easing when the government buys those assets, Treasury securities, mortgage-backed securities. So, if he starts selling them, that's actually quantitative tightening, which means rates would be going up. And that in a way gives him an excuse to say, let's take down the the target policy interest rate, which is that rate that the Federal Reserve pays on on bank reserves. So, I think he has to do kind of what a a pilot does. You can be feathering the engine at the same time that you're you're trying to to increase or decrease speed. I mean, you can be doing two things that aren't both pulling in the same direction. You can actually be accomplishing the goal of reducing the Fed's footprint, but at the same time be lowering the the target policy interest rate. I I would counter that perhaps with the the Fed is already ti- easing, sorry. Like there's already QE happening. They call it non-QE. I'm not even sure what the official term is here, Judy. But, um Michael Howell mentioned on our program recently that over $600 billion have been eased into the system already. So, what what you're suggesting maybe the tightening path is a 180° like turn from what we're seeing. What what are the ramifications of that? How we will feel that? What will that look like? Well, it's it's as you said. It would be it would be completely turning it around. And and the Fed kind of quietly did start um quantitative easing again. And they do it in the name of of reserve management. But, that I think will shine a light on this practice. The Fed began using paying interest on commercial bank reserves as part of an emergency measure. It was adopted as part of that package in October 2008 trying to confront the global financial crisis. And Congress allowed it because Bernanke said, "We need that." And the reason Bernanke wanted that ability is because the Fed knew it was going to be purchasing massive amounts of Treasuries and trying to bring interest rates down to near zero. And the Fed was concerned that that could actually unleash hyperinflation. Milton Friedman would say, "If you increase those reserves, that's the hot money. That's the multiplier effect. That is going to unleash inflation. So, I think that Bernanke wanted the ability to raise interest rates fast. He didn't want to have to mess around with open market operations and do it the Paul Volcker old-fashioned way. He wanted to be able to tell banks, "Don't make loans and we'll pay you a lot. Just keep the money sitting here." So, the Fed then gained this power to corral all of the the multiplier money, the base money that it was creating every time it purchased Treasury assets. So, so this is the practice I think the Fed should have stopped long ago. It's really a subsidy to big banks. If US citizens knew how much of that interest payment was going to foreign-owned banks, I don't think they'd like it. And it caused the Fed to start running an operating loss because it's paying so much to banks not to make loans. So, I think Kevin Warsh it shouldn't just be a matter of saying, "Let's reduce rates and do the 180° turn as far as our portfolio management and reserve management. Let's just phase out doing it that emergency way. Let's phase out that and just do it through open market operations." And that way the the QT and the QE would would balance out and we get whatever the real impact is meant to be in terms of reducing the money supply. That's a good way to get a handle on on um inflation once again. Absolutely. Reduction of money supply because M2 is at a record high right now. Um Kevin Kevin Warsh, is he a political candidate or is he a smart choice? So, the one is not mutually exclusive, of course, but uh is he a political candidate? >> [sighs and gasps] >> I think he's his own man. Um I think you're you're right to say that they're not mutually exclusive, but in this sense um he was actually a hawk when he was at the Federal Reserve before. And the reason he resigned is well, he went along and was even a facilitator of those emergency measures in 2008 because he was there before and after the 2008 financial collapse. Uh he got tired of doing it as a perpetual tool. And he now says he left in protest. So, even as he went along with it and helped make it happen, he said, "I never intended that to be permanent." So, I think he has that going for him, the experience the intellectual reckoning of what he had learned from that experience, and he saw how you give a government agency that kind of power, they just want more power. They never want to go back to being what they were before. So, he wanted to end it. Now, you have a president who believes in that supply-side approach to economic growth, of which the the monetary component is to be market-determined, not really manhandled by by a board of 12 people who vote eight times a year. And so, when you have a Fed that believes in deliberately restrictive rates, you're going to have a problem. The president is going to say, "Um I think rates should be lower." But maybe it's because he believes the market would bring them lower. I would like to see Kevin Warsh seek not to stimulate and not to constrain the the market interest rate, but rather to reflect it. And um I don't think that will necessarily put him at odds with the president. Has the Fed become too powerful, perhaps? Like if you were to compare it with Congress or the Treasury, it seems like everybody's listening to the Fed, but the Treasury's being ignored. Congress is definitely being ignored right now. Is the Fed too powerful, Judy? 100% 100% Too powerful, too prominent, and too political. When you have the chairman of the Fed making a ridiculous video as he did in response to receiving an inquiry from the Department of Justice. And in that video the chairman of the Federal Reserve, an a government agency says up and down I I believe deeply in transparency and accountability, and especially rule of law. And no one, certainly not the Federal Reserve chairman, is above the law. Well, rule of law is administered through the Department of Justice. So, right away it just strikes me as so hypocritical. And then he proceeds to say he's going to ignore not just one inquiry, but three, just asking for responses. And the Fed, readily available, had the data. They just chose to ignore this inquiry. And his his reasoning was that it's all about monetary policy. How dare you ask me about management ineptitude or cost overruns? And I don't have to respond precisely because I am at the head of the Federal Reserve, and I'm decreeing that this is about monetary policy. I think that's so against democratic norms. The Federal Reserve is not a branch of government. It is not the Supreme Court. It is not meant to balance power among Congress and the president. And if you look at the legislation authorizing the Federal Reserve's mandate from 1978 it explicitly calls for improved coordination, quote among the president, the Congress, and the Board of Governors of the Federal Reserve. So, the Fed has largely invented this sacrosanct idea that central bank independence means, I suppose, that they should cover their ears and not even be aware of what the elected president's economic growth program is all about. How do we instill trust again in the institution, perhaps? Like, you you you've been criticizing the model and I I get where you're coming from, but just how do we get that trust back though? Like, it seems like the it's completely eroded. Um Well, that's something Frankly, that's a great quote I remember from a speech Kevin Warsh gave um to the IMF, and that was in in the spring of of 2025. He said he is not someone who agrees with with granting increasing powers to government agencies to solve the world's problems. And he said to be trustworthy, you you have to prove yourself deserving of trust. And to prove you're deserving of trust, you have to be competent. So, you have a Federal Reserve that in the in the 8 years since since Chair Powell came in February 2018 uh has cumulative inflation of 31%. That means the US dollar purchasing power has been debased 31% over his term. I don't see how this chairman can continue to say price stability is a responsibility of the of the Federal Reserve and not acknowledge how he has so far missed the mark of maintaining stable prices even though he always invokes this this mandate. And yet, he he never apologized, let alone resigned. >> [clears throat] >> I I'm trying understand like the Fed always seems to be reactionary to to the whole situation and has to maybe deal with the Treasury sort of the cards that the Treasury deals them as well. Perhaps a lot of short-dated bills, a lot of new debt in the in the US. COVID of course was the reason. Now we got increased military spending. Always reactionary. How how does the Fed perhaps change that being more proactive, anticipatory or it more it and and anticipates more is probably the word. The actions by by the US government and maybe by the markets as well. Could we could criticize that the Fed hasn't reacted to the crisis in the Middle East at all. Just saying, "Hey, we'll wait and see." So how do we make the Fed more proactive again perhaps? >> Well, there's a weekly breakfast between the Treasury Secretary and the Chairman of the Fed. And there was at least a monthly get-together between the chair of the National Economic Committee which works directly for the President in the White House complex and the Fed chair. So normally this cooperation is something that's that's helpful on all sides and and has always taken place. I think the attitude now at the Fed is so defensive and and setting itself up as a separate power base that that's the threat to just normal cooperative relations because there are many issues on which the Treasury and the Fed should be cooperating. For one thing, these currency swaps that are being discussed. The UAE, United Arab Emirates, a candidate for currency swaps. I think the very nature of of currency swaps um does does bring up issues. For example, I would say it it it it it Sorry sorry to jump in. Could you just elaborate real quick? What what are currency swaps? What does it mean? Just for our audience so we can follow along. Well, it's contrary to a bailout and actually um Treasury Secretary Scott Bessent is very pointed in in explaining the difference because we did it for Argentina. A currency swap makes US dollars available in exchange for the currency of the recipient central bank uh of the country that we are cooperating with. And it can be for a set period of time, maybe a month, maybe maybe longer. And it is set up so that they get the dollars for their own currency at an established exchange rate and those dollars will be remitted back to the United States at a pre-established date at the same exchange rate plus an agreed upon rate of interest. Now, from the US point of view, when there is a a freeze in credit markets, um for instance, if if countries are so desperate for US dollars that they're even dumping Treasury securities. I know Treasury securities are a safe haven, but sometimes people actually want to even sell those off to have the dollars. Um it's better for the US not to have a disorderly market in our own sovereign debt. Um it's much better for the receiving country because the bank receives it and then it on loans it to its own commercial banks and does not ask questions. Now, I do think that brings up issues for the United States, but that's the way the Fed does it. They say, "We we have a deal with the central bank. We don't know where it's going after that. All we know is they're going to give us those dollars back at a pre-specified time." Um if it can really help settle markets because some countries are very vulnerable to a run on their currency. And it does put the lie to the idea that we have um as Milton Friedman would have advocated for a a pure freely floating exchange rate system in the world. We do not. This would be an inside deal and right now there's only six countries that have standing currency swap arrangements with the United States. Uh during 2008, I believe that was extended and in the aftermath to 14 central banks. But then you start getting into foreign policy. Cuz which ones are you going to permit to have this great privilege of swapping their currency for dollars under those arrangements. The reason I'm bringing this up in the context of the Treasury Fed relationship is the Treasury Secretary has um the exchange stabilization fund. And he can do swaps out of that. But there's a limit to that amount. He has total authority to utilize it. Um it's what Greenspan utilized in '94 for Mexico. When the Fed gets involved, it is a vastly higher amount. At one time, the currency swaps that were being carried as assets on the Fed's balance sheet um reached a half trillion. And again, in the aftermath of the global crisis. But only one congressman ever even questioned the chair of the Fed at that time and said, "Aren't you making an unapproved foreign aid loan to these these foreign central banks?" And um the response of Bernanke was "So." Cuz that's that's just they do have the power to do it. So I think that's an interesting question. It might be a way for the United States to continue to have currency dominance versus what if China started extending that privilege? China has aspirations to be a global reserve currency country and if they made it easier for countries to in in a in the event of an emergency be able to swap currencies and the yuan was deemed more acceptable um that might be competitive with the dollar's position. It's not happening. I don't see it happening. But I can see why the United States might be wanting to think ahead. I I got to be careful not to drift off into geopolitics cuz you just opened the door the US UAE OPEC OPEC plus that that's a whole different rabbit hole. I don't want to jump down that one cuz I want to stay on the US dollar and the role of the US dollar. Everybody's been talking about dollarization of course. Um we do have the crisis in the Middle East. You just touched on the UAE maybe potentially doing currency swaps with the US. Like what is the role of the US dollar right now? Um are you still bullish on the US dollar moving forward and how do you see it? How is it perceived right? You know, I never >> [laughter] >> I I don't even think of myself if bullish means I want the dollar stronger. Um no, I don't want it weaker. I want a dependable dollar. I I think um you get into all the issues the advantages of a so-called strong dollar. Um it makes it hard for our exporters. It it's considered in a way an unfair trade disadvantage and and even the Trump administration has been accused of saying you want a weaker dollar. While it has always been practice for a US Treasury secretary to always insist we want a strong dollar. But we did get into definitional issues like that, questions under Treasury Secretary Mnuchin, and I considered it a great triumph when he started using that language of a dependable dollar, a stable dollar. You want it to be a reliable unit of account that can convey price signals cross border. You want it to be meaningful as well as a a well-accepted medium of exchange, and of course we want it to be a trustworthy store of value. So, those are the fundamental functions of money, and to be the best, I think you just want it to represent stable purchasing power, and um not want it to be strong or weak vis-à-vis another currency. I think it should reflect a strong productive economy, and of course I would like to have the dollar linked to gold in some way because I think that would that would establish a real benchmark for strength. That would guarantee a certain purchasing power for people who believe that gold is a better surrogate for purchasing power than any currency. Is using gold the only way to instill trust back into the US dollar cuz it has been of course weakened just by the amount of debt that the US has, for example. Is gold the only way to to get that trust back? Well, we might have to define trust. Um certainly >> Or dependable perhaps, like you used the word dependable. >> what I'm saying is on the one hand, when you talk about about, you know, whether I'm bullish on the dollar or not, if I'm talking about currency swaps, that's demand driven. I mean, it's other countries wanting the dollar as the ultimate safe haven asset, even more than wanting to hold Treasuries. And that demand is strong. Now, does that mean the dollar is trusted? Well, I mean, it's the cleanest dirty shirt, I suppose, if if you're cynical about all fiat currencies and so I am somewhat. But I think that trust in the dollar um has to do with the outlook for stable purchasing power. We know the Fed deliberately seeks to um reduce purchasing power by 2% a year. May not sound like much, but over a lifetime that means a US dollar when you're born is going to be worth 21 cents if you die at 80. Um so I don't think that is what I would call a trustworthy currency in terms of stable purchasing power and that is the Fed's mandate, stable prices. But I think that um it's always going to be relative to other fiat currencies and for me the big driver is fiscal. It's it's the fiscal deficit spending. The Fed will always end up accommodating that because it the Treasury has to issue the debt to finance it and the Fed's portfolio is Treasury debt. So they are always going to be complicit and be involved in those in that that um fiscal irresponsibility. Yeah, they always have to react to what the Treasury is doing more or less or the US government itself. >> It's really Congress. It's really Congress. They they control the budget. That's in our Constitution. So when you have deficit spending, that's on Congress. Absolutely. No, and there's lots of it more and more so. Um we we it's an interesting debate. Like maybe just one last question on the US dollar. Where where do you see the biggest threat though coming? Is is it perhaps the Fed? Is it the Treasury? Is it China? Is it outside forces or other outside forces? Like what what's the biggest threat to the US dollar right now? Not pursuing a balanced budget. That's that's the threat. And again I go back to Congress. Now, there are some governors, some powerful governors, Florida, Rick DeSantis, and others are actually seeking an amendment to the Constitution to require a balanced budget. There are some responsible people in Congress, um who believe that we have to have a balanced budget. It was Paul Volcker at the Fed who told Congress, "I can accept a supply-side program. You can cut taxes and regulations. You can have better energy and trade policy, something, you know, very similar to the pillars driving the the Trump administration's economic program." How was all right with with Ronald Reagan when he was trying to do that, but Powell said, "There's just one thing that I demand as as the chairman of the Federal Reserve, and that is a plan to have a balanced budget. And whether it's over 10 years or preferably a shorter time period, unless you do that, you're you're you're out of control. So, that's the threat to the dollar. Very last question, Judy. I'm completely going off script here, but is there even a chance of a balanced budget? Let's Let's be realistic. Without a big reset, perhaps even I don't want to get too drastic. I don't want to put words in your mouth, but is there even a chance of a balanced budget? It sure looks difficult. Uh senators like Ron Johnson, uh Jody Arrington in the House, who's ahead of the Budget Committee, uh they believe in it deeply. They fought extremely hard, but uh it is it's very difficult, but as I say, it may be that the impetus comes from future potential candidates for the presidency, and um there are at least two governors who would make that a part of their campaign to have a balanced budget amendment to the Constitution. And if enough states sign on to that, then that becomes the new rules going forward. It's It's tiring to me to hear the chairman of the Fed when when always asked by members of Congress um is is our deficit spending sustainable? He says, "No, it's not in the long run. It's not." But we never seem to confront and say, "This is day one of the long run. What's the plan?" So, what we need is a plan and then the political will to pursue it. I think it is possible. I'm completely going off script, Judy, but it sounds like a bit political suicide if you were to push for a balanced budget, perhaps, cuz it might mean that your state or your your constituency might be suffering on the other end cuz you might get subsidies, let's say Detroit, for example, or other places. Um Is Is Is there even a govern Like I'm I'm going so far off script right now. Can the US president even dictate a balanced budget per se per executive order or something? Cuz it it feels like we need to rip the band-aid off. But for that, everybody needs to be aligned. It's going to be very difficult. I think a president can campaign on that basis. I think it would be a very popular very popular campaign initiative that people would embrace, that voters would embrace, and then you have to have communication between the voters and the people they elect to represent them in Congress. And I do think it would be a combination of um reducing expenditures and the real secret is high economic growth. I mean, it really does count on not austerity, but rather freeing up the private sector. I heard Kevin Hassett earlier this week. He's He's the chairman of the National Economic Council, so the lead economic advisor to President Trump talk about potential growth rates later this year of 5 and even 6%. Now, I know other other economists, Stephen Moore, was kind of well, that would be nice, but I think he he said something maybe 3%. The point is anytime you can bump up economic growth, and I mean productive growth, and US companies are having incredible returns. I mean, just the profits are it earnings are up over 20% at most of the big companies driving our equity markets. It's really quite an amazing performance, and I have to believe that much of that is due to the the tax incentives that they can they can deduct capital expenditures, and people are getting tax refunds, so they're spending. We're doing so many things that are pushing for high growth economy, and if we continue to do that, and at the same time really tighten our belts on spending, and that that citizen outrage over the tremendous fraud in government spending is going to work to the advantage, I think, of any candidate who really talks about hitting a balanced budget through putting constraints on expenditures by Congress, and at the same time promoting growth. There seems to be a bit of a push on social media to weed out those expenditures those wasteful expenditures, especially in blue states, it seems like right now. That's what I'm picking up. I don't want to get political here, but I've been hearing like the child care centers and things like that, hospices in California, I believe, as well. So, I'm just picking up the I'm sure there's a lot more on both sides of the aisle, it doesn't really matter, but those are the examples that are being pushed through social media right now. Um, Judy, a wonderful conversation. I've one last question for you. The US is turning 250 this summer on July 4th. If you were to write a birthday card um to the US, what would it say? Stay the course. The American idea was a bold experiment. Even its founders wondered whether people would be capable of self-government. Pretty radical idea. But I think it's a beautiful sentiment that we believe everyone's created equal. We have certain rights, inalienable rights, because they don't come from government, they come from God. And life, liberty, and pursuit of happiness, those are still the foremost objectives we hope for individuals. We need to be true to that vision, and that means not putting encumbrances and harnesses on on people's capability to be prosperous. I think government has to always remember that it serves the citizens, and and we have to be responsible. We have to force our congressmen to do what every businessman has to do, and that's balance their costs against their expenses. That is that is the basic duty of elected officials, in my view. So, I think by the time we hit our our 300th anniversary in 50 years, I hope we have shown that we are not only still around, but standing tall, because we did get this existential threat of fiscal unsustainability under control. We faced up to our our problem. Fantastic, Judy. Really appreciate you humoring my questions and the discourses here going off script. We didn't get a chance to talk about gold, but I thought it was really valuable discussion to be had today, and I tremendously appreciate your time. Where where can we send our audience, or where can we follow more of your work? I think Independent Institute, or or I'm I post on X at Judy Shelton. So, I I welcome the interest of people and I I hope I hope we can form our own sound money army, but uh I'm just one of millions who I think are acknowledging it's almost a basic human right. We should have money that is trustworthy. We earn it and it should maintain its value. Very well said. No, I I fully agree and really appreciate your time again, Judy. Thank you so much for coming on. Can't wait to do this again very soon. Hopefully in person one of these days. It'd be fantastic to meet you at one of the conferences. Thank you so much, Judy, and everybody else. Thank you so much for tuning in. A wonderful discussion here with Judy Shelton. Very timely. Lots happening this week, of course. The Fed was the main topic, but I think it's an important one with Kevin Warsh now taking the helm here by the end of this week. Tremendously appreciate you watching. Help us out with the algorithm. Hit that like and subscribe button if you enjoyed this conversation. It helps us out tremendously. And put down below, what would you write on the birthday card to the US to the for the 250th birthday? I'd be curious to read your your comments. Thank you so much for tuning in and take care out there.
The Biggest THREAT to the Dollar Is Washington Itself | Judy Shelton
Summary
Transcript
Too powerful, too prominent, and too political. When you have the chairman of the Fed making a ridiculous video as he did, and no one, certainly not the Federal Reserve chairman, is above the law. We should have money that is trustworthy. We earn it, and it should maintain its value. A lot of things happening at the same time right now. Of course, we have the situation in the Middle East. We have the US delegation visiting China this week as well, and there's changes at the Fed. What does that all mean though? We are investors, we want to know, we want to understand the macro so we can handle the micro. So, I've invited back Judy Shelton. She's a senior fellow at the Independent Institute, and I'm really looking forward to getting her insight. She has a direct line into the White House, and she has a direct line to the to the government, so we can help or she can help us understand, okay, what is really happening? What is happening behind the scenes? And is a 50-year-old back bond potentially being introduced here on the 250th anniversary of the United States? We'll we'll have to discuss that, of course, as well. Really looking forward to the discussion with Judy, but before I switch over to my guest, quick reminder, hit that hit hit that algorithm button, hit that subscribe button, hit that like button. We It means a lot to us, and we really really appreciate it. Now, Judy, it's a great pleasure to welcome you back on Soar Financially. Thank you so much for joining us again. It's my pleasure to be with you. Thank you. Yeah, really looking forward to this discussion. As I mentioned, there's a lot happening, a lot of a lot of [snorts] things are happening simultaneously, and have a hard time like structuring even the conversation because there is so much to discuss, but maybe we'll start with the Fed. Maybe the easiest topic out of the way first. Kevin Warsh, he's passed the hearings. There I think there's one final vote left. What what do you make of the situation right now at the Fed? And what direction do you expect the Fed to take post May 15th here? Well, I I know the scuttlebutt is kind of oh well, the inflation numbers are not looking so good. Therefore, he shouldn't try to reduce rates right away. I think that goes to this issue of the Fed's model. Because if you walk through, what is the purpose of continuing to pay high interest rates to commercial banks so that they keep a high level of reserves sitting at the Fed doing nothing to finance productive activity. How is that helping on inflation? So, I think we have to go back to or go forward under Kevin Warsh toward a supply-side economic orientation for those Fed models that does not equilibrate economic growth with with needing to impose restrictive rates and does not think that high employment is a bad thing, but instead recognizes that the way to fight inflation is to increase supply. And you don't do that by making it hard for small and medium-sized businesses to borrow. You don't do it by locking them out of of getting loans. Access to capital is part of that that formula. So, I think what Kevin Warsh can do is is two things at once. That is he can reduce the Fed's footprint by selling off portions of its portfolio. But of course, that's the opposite of quantitative easing when the government buys those assets, Treasury securities, mortgage-backed securities. So, if he starts selling them, that's actually quantitative tightening, which means rates would be going up. And that in a way gives him an excuse to say, let's take down the the target policy interest rate, which is that rate that the Federal Reserve pays on on bank reserves. So, I think he has to do kind of what a a pilot does. You can be feathering the engine at the same time that you're you're trying to to increase or decrease speed. I mean, you can be doing two things that aren't both pulling in the same direction. You can actually be accomplishing the goal of reducing the Fed's footprint, but at the same time be lowering the the target policy interest rate. I I would counter that perhaps with the the Fed is already ti- easing, sorry. Like there's already QE happening. They call it non-QE. I'm not even sure what the official term is here, Judy. But, um Michael Howell mentioned on our program recently that over $600 billion have been eased into the system already. So, what what you're suggesting maybe the tightening path is a 180° like turn from what we're seeing. What what are the ramifications of that? How we will feel that? What will that look like? Well, it's it's as you said. It would be it would be completely turning it around. And and the Fed kind of quietly did start um quantitative easing again. And they do it in the name of of reserve management. But, that I think will shine a light on this practice. The Fed began using paying interest on commercial bank reserves as part of an emergency measure. It was adopted as part of that package in October 2008 trying to confront the global financial crisis. And Congress allowed it because Bernanke said, "We need that." And the reason Bernanke wanted that ability is because the Fed knew it was going to be purchasing massive amounts of Treasuries and trying to bring interest rates down to near zero. And the Fed was concerned that that could actually unleash hyperinflation. Milton Friedman would say, "If you increase those reserves, that's the hot money. That's the multiplier effect. That is going to unleash inflation. So, I think that Bernanke wanted the ability to raise interest rates fast. He didn't want to have to mess around with open market operations and do it the Paul Volcker old-fashioned way. He wanted to be able to tell banks, "Don't make loans and we'll pay you a lot. Just keep the money sitting here." So, the Fed then gained this power to corral all of the the multiplier money, the base money that it was creating every time it purchased Treasury assets. So, so this is the practice I think the Fed should have stopped long ago. It's really a subsidy to big banks. If US citizens knew how much of that interest payment was going to foreign-owned banks, I don't think they'd like it. And it caused the Fed to start running an operating loss because it's paying so much to banks not to make loans. So, I think Kevin Warsh it shouldn't just be a matter of saying, "Let's reduce rates and do the 180° turn as far as our portfolio management and reserve management. Let's just phase out doing it that emergency way. Let's phase out that and just do it through open market operations." And that way the the QT and the QE would would balance out and we get whatever the real impact is meant to be in terms of reducing the money supply. That's a good way to get a handle on on um inflation once again. Absolutely. Reduction of money supply because M2 is at a record high right now. Um Kevin Kevin Warsh, is he a political candidate or is he a smart choice? So, the one is not mutually exclusive, of course, but uh is he a political candidate? >> [sighs and gasps] >> I think he's his own man. Um I think you're you're right to say that they're not mutually exclusive, but in this sense um he was actually a hawk when he was at the Federal Reserve before. And the reason he resigned is well, he went along and was even a facilitator of those emergency measures in 2008 because he was there before and after the 2008 financial collapse. Uh he got tired of doing it as a perpetual tool. And he now says he left in protest. So, even as he went along with it and helped make it happen, he said, "I never intended that to be permanent." So, I think he has that going for him, the experience the intellectual reckoning of what he had learned from that experience, and he saw how you give a government agency that kind of power, they just want more power. They never want to go back to being what they were before. So, he wanted to end it. Now, you have a president who believes in that supply-side approach to economic growth, of which the the monetary component is to be market-determined, not really manhandled by by a board of 12 people who vote eight times a year. And so, when you have a Fed that believes in deliberately restrictive rates, you're going to have a problem. The president is going to say, "Um I think rates should be lower." But maybe it's because he believes the market would bring them lower. I would like to see Kevin Warsh seek not to stimulate and not to constrain the the market interest rate, but rather to reflect it. And um I don't think that will necessarily put him at odds with the president. Has the Fed become too powerful, perhaps? Like if you were to compare it with Congress or the Treasury, it seems like everybody's listening to the Fed, but the Treasury's being ignored. Congress is definitely being ignored right now. Is the Fed too powerful, Judy? 100% 100% Too powerful, too prominent, and too political. When you have the chairman of the Fed making a ridiculous video as he did in response to receiving an inquiry from the Department of Justice. And in that video the chairman of the Federal Reserve, an a government agency says up and down I I believe deeply in transparency and accountability, and especially rule of law. And no one, certainly not the Federal Reserve chairman, is above the law. Well, rule of law is administered through the Department of Justice. So, right away it just strikes me as so hypocritical. And then he proceeds to say he's going to ignore not just one inquiry, but three, just asking for responses. And the Fed, readily available, had the data. They just chose to ignore this inquiry. And his his reasoning was that it's all about monetary policy. How dare you ask me about management ineptitude or cost overruns? And I don't have to respond precisely because I am at the head of the Federal Reserve, and I'm decreeing that this is about monetary policy. I think that's so against democratic norms. The Federal Reserve is not a branch of government. It is not the Supreme Court. It is not meant to balance power among Congress and the president. And if you look at the legislation authorizing the Federal Reserve's mandate from 1978 it explicitly calls for improved coordination, quote among the president, the Congress, and the Board of Governors of the Federal Reserve. So, the Fed has largely invented this sacrosanct idea that central bank independence means, I suppose, that they should cover their ears and not even be aware of what the elected president's economic growth program is all about. How do we instill trust again in the institution, perhaps? Like, you you you've been criticizing the model and I I get where you're coming from, but just how do we get that trust back though? Like, it seems like the it's completely eroded. Um Well, that's something Frankly, that's a great quote I remember from a speech Kevin Warsh gave um to the IMF, and that was in in the spring of of 2025. He said he is not someone who agrees with with granting increasing powers to government agencies to solve the world's problems. And he said to be trustworthy, you you have to prove yourself deserving of trust. And to prove you're deserving of trust, you have to be competent. So, you have a Federal Reserve that in the in the 8 years since since Chair Powell came in February 2018 uh has cumulative inflation of 31%. That means the US dollar purchasing power has been debased 31% over his term. I don't see how this chairman can continue to say price stability is a responsibility of the of the Federal Reserve and not acknowledge how he has so far missed the mark of maintaining stable prices even though he always invokes this this mandate. And yet, he he never apologized, let alone resigned. >> [clears throat] >> I I'm trying understand like the Fed always seems to be reactionary to to the whole situation and has to maybe deal with the Treasury sort of the cards that the Treasury deals them as well. Perhaps a lot of short-dated bills, a lot of new debt in the in the US. COVID of course was the reason. Now we got increased military spending. Always reactionary. How how does the Fed perhaps change that being more proactive, anticipatory or it more it and and anticipates more is probably the word. The actions by by the US government and maybe by the markets as well. Could we could criticize that the Fed hasn't reacted to the crisis in the Middle East at all. Just saying, "Hey, we'll wait and see." So how do we make the Fed more proactive again perhaps? >> Well, there's a weekly breakfast between the Treasury Secretary and the Chairman of the Fed. And there was at least a monthly get-together between the chair of the National Economic Committee which works directly for the President in the White House complex and the Fed chair. So normally this cooperation is something that's that's helpful on all sides and and has always taken place. I think the attitude now at the Fed is so defensive and and setting itself up as a separate power base that that's the threat to just normal cooperative relations because there are many issues on which the Treasury and the Fed should be cooperating. For one thing, these currency swaps that are being discussed. The UAE, United Arab Emirates, a candidate for currency swaps. I think the very nature of of currency swaps um does does bring up issues. For example, I would say it it it it it Sorry sorry to jump in. Could you just elaborate real quick? What what are currency swaps? What does it mean? Just for our audience so we can follow along. Well, it's contrary to a bailout and actually um Treasury Secretary Scott Bessent is very pointed in in explaining the difference because we did it for Argentina. A currency swap makes US dollars available in exchange for the currency of the recipient central bank uh of the country that we are cooperating with. And it can be for a set period of time, maybe a month, maybe maybe longer. And it is set up so that they get the dollars for their own currency at an established exchange rate and those dollars will be remitted back to the United States at a pre-established date at the same exchange rate plus an agreed upon rate of interest. Now, from the US point of view, when there is a a freeze in credit markets, um for instance, if if countries are so desperate for US dollars that they're even dumping Treasury securities. I know Treasury securities are a safe haven, but sometimes people actually want to even sell those off to have the dollars. Um it's better for the US not to have a disorderly market in our own sovereign debt. Um it's much better for the receiving country because the bank receives it and then it on loans it to its own commercial banks and does not ask questions. Now, I do think that brings up issues for the United States, but that's the way the Fed does it. They say, "We we have a deal with the central bank. We don't know where it's going after that. All we know is they're going to give us those dollars back at a pre-specified time." Um if it can really help settle markets because some countries are very vulnerable to a run on their currency. And it does put the lie to the idea that we have um as Milton Friedman would have advocated for a a pure freely floating exchange rate system in the world. We do not. This would be an inside deal and right now there's only six countries that have standing currency swap arrangements with the United States. Uh during 2008, I believe that was extended and in the aftermath to 14 central banks. But then you start getting into foreign policy. Cuz which ones are you going to permit to have this great privilege of swapping their currency for dollars under those arrangements. The reason I'm bringing this up in the context of the Treasury Fed relationship is the Treasury Secretary has um the exchange stabilization fund. And he can do swaps out of that. But there's a limit to that amount. He has total authority to utilize it. Um it's what Greenspan utilized in '94 for Mexico. When the Fed gets involved, it is a vastly higher amount. At one time, the currency swaps that were being carried as assets on the Fed's balance sheet um reached a half trillion. And again, in the aftermath of the global crisis. But only one congressman ever even questioned the chair of the Fed at that time and said, "Aren't you making an unapproved foreign aid loan to these these foreign central banks?" And um the response of Bernanke was "So." Cuz that's that's just they do have the power to do it. So I think that's an interesting question. It might be a way for the United States to continue to have currency dominance versus what if China started extending that privilege? China has aspirations to be a global reserve currency country and if they made it easier for countries to in in a in the event of an emergency be able to swap currencies and the yuan was deemed more acceptable um that might be competitive with the dollar's position. It's not happening. I don't see it happening. But I can see why the United States might be wanting to think ahead. I I got to be careful not to drift off into geopolitics cuz you just opened the door the US UAE OPEC OPEC plus that that's a whole different rabbit hole. I don't want to jump down that one cuz I want to stay on the US dollar and the role of the US dollar. Everybody's been talking about dollarization of course. Um we do have the crisis in the Middle East. You just touched on the UAE maybe potentially doing currency swaps with the US. Like what is the role of the US dollar right now? Um are you still bullish on the US dollar moving forward and how do you see it? How is it perceived right? You know, I never >> [laughter] >> I I don't even think of myself if bullish means I want the dollar stronger. Um no, I don't want it weaker. I want a dependable dollar. I I think um you get into all the issues the advantages of a so-called strong dollar. Um it makes it hard for our exporters. It it's considered in a way an unfair trade disadvantage and and even the Trump administration has been accused of saying you want a weaker dollar. While it has always been practice for a US Treasury secretary to always insist we want a strong dollar. But we did get into definitional issues like that, questions under Treasury Secretary Mnuchin, and I considered it a great triumph when he started using that language of a dependable dollar, a stable dollar. You want it to be a reliable unit of account that can convey price signals cross border. You want it to be meaningful as well as a a well-accepted medium of exchange, and of course we want it to be a trustworthy store of value. So, those are the fundamental functions of money, and to be the best, I think you just want it to represent stable purchasing power, and um not want it to be strong or weak vis-à-vis another currency. I think it should reflect a strong productive economy, and of course I would like to have the dollar linked to gold in some way because I think that would that would establish a real benchmark for strength. That would guarantee a certain purchasing power for people who believe that gold is a better surrogate for purchasing power than any currency. Is using gold the only way to instill trust back into the US dollar cuz it has been of course weakened just by the amount of debt that the US has, for example. Is gold the only way to to get that trust back? Well, we might have to define trust. Um certainly >> Or dependable perhaps, like you used the word dependable. >> what I'm saying is on the one hand, when you talk about about, you know, whether I'm bullish on the dollar or not, if I'm talking about currency swaps, that's demand driven. I mean, it's other countries wanting the dollar as the ultimate safe haven asset, even more than wanting to hold Treasuries. And that demand is strong. Now, does that mean the dollar is trusted? Well, I mean, it's the cleanest dirty shirt, I suppose, if if you're cynical about all fiat currencies and so I am somewhat. But I think that trust in the dollar um has to do with the outlook for stable purchasing power. We know the Fed deliberately seeks to um reduce purchasing power by 2% a year. May not sound like much, but over a lifetime that means a US dollar when you're born is going to be worth 21 cents if you die at 80. Um so I don't think that is what I would call a trustworthy currency in terms of stable purchasing power and that is the Fed's mandate, stable prices. But I think that um it's always going to be relative to other fiat currencies and for me the big driver is fiscal. It's it's the fiscal deficit spending. The Fed will always end up accommodating that because it the Treasury has to issue the debt to finance it and the Fed's portfolio is Treasury debt. So they are always going to be complicit and be involved in those in that that um fiscal irresponsibility. Yeah, they always have to react to what the Treasury is doing more or less or the US government itself. >> It's really Congress. It's really Congress. They they control the budget. That's in our Constitution. So when you have deficit spending, that's on Congress. Absolutely. No, and there's lots of it more and more so. Um we we it's an interesting debate. Like maybe just one last question on the US dollar. Where where do you see the biggest threat though coming? Is is it perhaps the Fed? Is it the Treasury? Is it China? Is it outside forces or other outside forces? Like what what's the biggest threat to the US dollar right now? Not pursuing a balanced budget. That's that's the threat. And again I go back to Congress. Now, there are some governors, some powerful governors, Florida, Rick DeSantis, and others are actually seeking an amendment to the Constitution to require a balanced budget. There are some responsible people in Congress, um who believe that we have to have a balanced budget. It was Paul Volcker at the Fed who told Congress, "I can accept a supply-side program. You can cut taxes and regulations. You can have better energy and trade policy, something, you know, very similar to the pillars driving the the Trump administration's economic program." How was all right with with Ronald Reagan when he was trying to do that, but Powell said, "There's just one thing that I demand as as the chairman of the Federal Reserve, and that is a plan to have a balanced budget. And whether it's over 10 years or preferably a shorter time period, unless you do that, you're you're you're out of control. So, that's the threat to the dollar. Very last question, Judy. I'm completely going off script here, but is there even a chance of a balanced budget? Let's Let's be realistic. Without a big reset, perhaps even I don't want to get too drastic. I don't want to put words in your mouth, but is there even a chance of a balanced budget? It sure looks difficult. Uh senators like Ron Johnson, uh Jody Arrington in the House, who's ahead of the Budget Committee, uh they believe in it deeply. They fought extremely hard, but uh it is it's very difficult, but as I say, it may be that the impetus comes from future potential candidates for the presidency, and um there are at least two governors who would make that a part of their campaign to have a balanced budget amendment to the Constitution. And if enough states sign on to that, then that becomes the new rules going forward. It's It's tiring to me to hear the chairman of the Fed when when always asked by members of Congress um is is our deficit spending sustainable? He says, "No, it's not in the long run. It's not." But we never seem to confront and say, "This is day one of the long run. What's the plan?" So, what we need is a plan and then the political will to pursue it. I think it is possible. I'm completely going off script, Judy, but it sounds like a bit political suicide if you were to push for a balanced budget, perhaps, cuz it might mean that your state or your your constituency might be suffering on the other end cuz you might get subsidies, let's say Detroit, for example, or other places. Um Is Is Is there even a govern Like I'm I'm going so far off script right now. Can the US president even dictate a balanced budget per se per executive order or something? Cuz it it feels like we need to rip the band-aid off. But for that, everybody needs to be aligned. It's going to be very difficult. I think a president can campaign on that basis. I think it would be a very popular very popular campaign initiative that people would embrace, that voters would embrace, and then you have to have communication between the voters and the people they elect to represent them in Congress. And I do think it would be a combination of um reducing expenditures and the real secret is high economic growth. I mean, it really does count on not austerity, but rather freeing up the private sector. I heard Kevin Hassett earlier this week. He's He's the chairman of the National Economic Council, so the lead economic advisor to President Trump talk about potential growth rates later this year of 5 and even 6%. Now, I know other other economists, Stephen Moore, was kind of well, that would be nice, but I think he he said something maybe 3%. The point is anytime you can bump up economic growth, and I mean productive growth, and US companies are having incredible returns. I mean, just the profits are it earnings are up over 20% at most of the big companies driving our equity markets. It's really quite an amazing performance, and I have to believe that much of that is due to the the tax incentives that they can they can deduct capital expenditures, and people are getting tax refunds, so they're spending. We're doing so many things that are pushing for high growth economy, and if we continue to do that, and at the same time really tighten our belts on spending, and that that citizen outrage over the tremendous fraud in government spending is going to work to the advantage, I think, of any candidate who really talks about hitting a balanced budget through putting constraints on expenditures by Congress, and at the same time promoting growth. There seems to be a bit of a push on social media to weed out those expenditures those wasteful expenditures, especially in blue states, it seems like right now. That's what I'm picking up. I don't want to get political here, but I've been hearing like the child care centers and things like that, hospices in California, I believe, as well. So, I'm just picking up the I'm sure there's a lot more on both sides of the aisle, it doesn't really matter, but those are the examples that are being pushed through social media right now. Um, Judy, a wonderful conversation. I've one last question for you. The US is turning 250 this summer on July 4th. If you were to write a birthday card um to the US, what would it say? Stay the course. The American idea was a bold experiment. Even its founders wondered whether people would be capable of self-government. Pretty radical idea. But I think it's a beautiful sentiment that we believe everyone's created equal. We have certain rights, inalienable rights, because they don't come from government, they come from God. And life, liberty, and pursuit of happiness, those are still the foremost objectives we hope for individuals. We need to be true to that vision, and that means not putting encumbrances and harnesses on on people's capability to be prosperous. I think government has to always remember that it serves the citizens, and and we have to be responsible. We have to force our congressmen to do what every businessman has to do, and that's balance their costs against their expenses. That is that is the basic duty of elected officials, in my view. So, I think by the time we hit our our 300th anniversary in 50 years, I hope we have shown that we are not only still around, but standing tall, because we did get this existential threat of fiscal unsustainability under control. We faced up to our our problem. Fantastic, Judy. Really appreciate you humoring my questions and the discourses here going off script. We didn't get a chance to talk about gold, but I thought it was really valuable discussion to be had today, and I tremendously appreciate your time. Where where can we send our audience, or where can we follow more of your work? I think Independent Institute, or or I'm I post on X at Judy Shelton. So, I I welcome the interest of people and I I hope I hope we can form our own sound money army, but uh I'm just one of millions who I think are acknowledging it's almost a basic human right. We should have money that is trustworthy. We earn it and it should maintain its value. Very well said. No, I I fully agree and really appreciate your time again, Judy. Thank you so much for coming on. Can't wait to do this again very soon. Hopefully in person one of these days. It'd be fantastic to meet you at one of the conferences. Thank you so much, Judy, and everybody else. Thank you so much for tuning in. A wonderful discussion here with Judy Shelton. Very timely. Lots happening this week, of course. The Fed was the main topic, but I think it's an important one with Kevin Warsh now taking the helm here by the end of this week. Tremendously appreciate you watching. Help us out with the algorithm. Hit that like and subscribe button if you enjoyed this conversation. It helps us out tremendously. And put down below, what would you write on the birthday card to the US to the for the 250th birthday? I'd be curious to read your your comments. Thank you so much for tuning in and take care out there.