Thread by @davidfrum

Since the fall of 2018, the price of gold has risen by $400 USD / ounce.

For most people, this rise in the price of gold is at most a mildly interesting economic fact. It's one of millions of price signals in the economy, and far from one of the most important. 2/x

But in the minds of a small band of gold enthusiasts, gold is more than just another commodity. It's a mystic talisman, the secret decoder ring. As they see it, it's not that gold is UP $400 vs the dollar since autumn 2018. In their eyes, the dollar is DOWN 33% against gold. 3/x

Back in the days of the US gold standard, such a decline in the gold-value of the dollar would have called for radical measures: a big increase in interest rates maybe. The US economy would have been pushed into sharp recession. 4/x

To most of us, from our modern vantage point, such an action would seem crazy. Why throw millions of people out of work, forgo all kinds of productive investments, to stop gold from rising from $1200 to $1600? Who cares? 5/x

But if you believe in the secret decoder ring theory of gold - that rise from $1200 to $1600 is a signal of impending crisis: inflation, soon followed by hyper-inflation. A short sharp recession becomes a price well worth paying to avert such a calamity. 6/x

You say, OK thanks for the ancient history, what does any of this have to do with the price of eggs?

Quite a lot. President Trump's latest nominee to the Federal Reserve, Judy Shelton, is one of the most prominent surviving advocates of the gold decoder-ring theory. 7/x

Shelton has been arguing these views for a long time. Here she is in the spring of 2008 fondly recalling the gold old days when "a nation that devalued its money against gold -- i.e., floated its currency -- was considered to be cheating." 8/x wsj.com/articles/SB120…

Soon afterward, the world would plunge into severe economic crisis - and the price of gold would rise. This was the same predicament the US faced in 1931. Back then, the US tightened money to protect the dollar-gold ratio - converting recession into Great Depression. 9/x

In 2009, the US did the opposite. It dismissed the price of gold as no more a guideline than the price of lead, cadmium, or potash - and no guide at all to interest rate policy. Result: no Great Depression. 10/x

Had Shelton been on the Fed in 2009, her theories would have pointed to repeating the policy of 1931: tightening in the throes of crisis. In her Senate testimony, she disavowed her own logic - but that's what she has written over and over. 11/x

President Trump has called for ever lower interest rates - lower even than today's record low, 2.061% for a 30-year bond. Why he has nominated a Fed governor who should be urging massively higher rates is an incomprehensible mystery. 12/x

Yet that's what he's done, and that's where we are. Yet there is good news about this otherwise bizarre and risky nomination: 13/x

Good news 1) Shelton does not seem a clear or consistent thinker who would follow her published ideas to their catastrophic logical conclusion - especially not under a Republican president seeking re-election, and ... 14/x

...

2) even better - it looks like she lacks the votes even in this dismal Senate and will join Trump's other stillborn weirdo Fed nominations back in the antechamber of Larry Kudlow's White House office. END