Judy Shelton: The Global Economy is In ‘A Very Dangerous Situation’


CNBC Transcript: Prospective Fed nominee Judy Shelton Speaks with CNBC’s Rick Santelli Today

Judy Shelton
Image source: CNBC Video Screenshot

WHEN: Today, Thursday, August 1, 2019

WHERE: CNBC’s “Squawk on the Street

The following is the unofficial transcript of a CNBC interview with Prospective Fed nominee Judy Shelton Speaks and CNBC’s Rick Santelli on CNBC’s “Squawk on the Street” (M-F 9AM – 11AM) today, Thursday, August 1st. The following is a link to video of the interview on CNBC.com:


Q2 hedge fund letters, conference, scoops etc

Potential Fed pick Shelton: The global economy is in ‘a very dangerous situation’

SARA EISEN: Rick Santelli, a special edition, post-Fed, Santelli Exchange, I have been looking forward to this. Rick, all you.

RICK SANTELLI: Thank you very much. And I’d like to welcome my guest, prospective nominee for Fed Governorship by the Trump administration: Dr. Judy Shelton. And before we get into this, viewers, listeners, three-second delay, we will do our best. Judy, I would like to start out reading a “Washington Post” quote from the 22nd of July in an article where you were advocating a 50 basis-point decrease at yesterday’s meeting. Here’s what you said: I do think global conditions and the clear monetary paths being signaled by other central banks are a factor considering how much our Own Federal reserve might choose to lower on July 31st. My question to you is, are we now in a covert game of trying to neutralize perceived advantages by policies of other Central Banks and its effect on not only interest rates, but on foreign exchange?

DR. JUDY SHELTON: Yes, Rick. I am afraid that that is the reality of the situation. When the Fed or any other Central Bank talks about stimulus these days, it’s not to stimulate growth. The effect of 25-basis points is like tasing an inert body. It’s not causing any growth to be stimulated. But it is having an effect in currency markets and we are in a very dangerous situation. It’s not unlike the 1930s when you had beggar thy neighbor competitive appreciations, where one nation after another devalued currency against trading partners. In those days against a gold standard, everyone was devaluing. Today we have the European Central Bank, Bank of Japan, the People’s Bank of China, potentially the Bank of England, all of them devaluing against our currency. And that turns out to be where Central Bank monetary policy decisions have the most impact, by far more than any — any presumed stimulus to real growth.

RICK SANTELLI: But, you know, the result has been very counterintuitive. The dollar index is rallying strongly. If we look at the forward swaps out of Euros, Yen, Pound, and the Dollars, it’s close to the most expensive it’s been all year. And in the end, even if what you say is correct, and I’ve believed it is for a long time, is it really in our best interest to join forces with a condition we don’t believe is correct?

DR. JUDY SHELTON: It would be nice to be virtuous in a vacuum, but I don’t think we have that luxury. We are doing the right things in the United States. We have a pro-growth economic agenda, the hard policy choices on reducing the regulatory burden and making the tax environment more friendly to encouraging business. In Europe they are not making those hard decisions. But I don’t think that means that Americans should have to subsidize European exports. I don’t think that we should make it harder for our own manufacturers to compete domestically against imports from other countries where they have resorted to cheating, really, through currency devaluation to make it look like they are offering the same thing at a better price.

RICK SANTELLI: You know, Dr. Judy, this is going to sound crazy, but I’m sorry. Here’s where logic takes me. That there is very little real difference in money terms between tariffs and monetary policy aimed at lowering your exchange rate with other currencies you compete with in the export market. If you really think it through, we are really arguing semantics here. So, in the end, I guess my question is, as the dollar gets more expensive in the funding markets, it’s having an inverse relationship with our desires, but more to the point what advantage are we trying to neutralize? Yes, multinationals make a lot of money, and a stronger dollar from those U.S. multinationals may hurt a bit, but if you look at the economies playing this game more actively, their economies aren’t any better. They are worse than the U.S.

DR. JUDY SHELTON: That’s true. But it still acts as a tariff. They are effectively putting a tariff on our exported goods when they deliberately devalue their currency. And I think in the end, we’re at a breakthrough intellectually in terms of figuring out where Central Banks are really effective. And it’s a shame that it turns out to be in moving currencies. But it’s a huge step to begin to acknowledge that and to start talking about the need for a level international monetary playing field. I think that kind of stability would do so much more to foster productive free trade and the flows of capital. We have so much malinvestment and distortions caused by the actions of Central Banks, who have engineered the global economy into these negative interest rates, who have brought about these bizarre yield curves, and I think that’s very damaging. I’m proud that the United States is showing the leadership to confront the practice and to get us back on track, so that trade is carried out on the right foundation.

RICK SANTELLI: You know, and I agree, but I think that maybe as the reserve currency, we have more to lose than any other country playing these covert games. But more to the point, why don’t we lead by example in a positive fashion? I would actually rather see tariffs levied versus trying to manipulate our own currencies through easing when conditions don’t really dictate it or at least there is a debate as to whether they do. Finish the discussion.

DR. JUDY SHELTON: I think there is another danger here, and it’s for global financial stability. If it were possible to just ignore what other Central Banks are doing and just let the dollar soar relative to these other currencies, we have problems because so much of the outstanding debt in the world is denominated in dollars. And if the local currencies depreciate against the dollar, it’s going to make it that much harder for those borrowers to pay back that money. And I fear the risk of regional default if it gets too far out in terms of the value of the dollar against these depreciated currencies. That would be dangerous.

RICK SANTELLI: Dr. Judy Shelton, thank you for joining me today. Carl Quintanilla, back to you.

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