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Judy Shelton’s Inconsistencies Extend Beyond the Fed



FREDERICKSBURG, Va. — Judy Shelton has spent her career pushing for free markets and criticizing the far-reaching power of the Federal Reserve — an institution she may join as a governor and could one day lead, given the right chain of events.

Yet Ms. Shelton’s track record is packed with incongruities, ones that have raised eyebrows among Senate Republicans, imperiling her nomination to take one of seven seats on the Fed’s board in Washington. Senator John Thune, Republican of South Dakota, told reporters last week that while Ms. Shelton’s confirmation remains a priority for the White House, she does not yet have the necessary votes.

Ms. Shelton has made contradictory statements about issues of importance to a future central banker: She once pushed for higher interest rates and a return to a gold standard before backing away from those positions as she sought to secure President Trump’s nomination to the Fed and congressional support.

Those inconsistencies extend to her private life, where she has failed to apply her public view that markets and businesses should operate unencumbered and free of government interference to her own backyard.

Over the past several years, Ms. Shelton and her husband have gone to court to block mining projects near their home — a manor on a former plantation outside of Fredericksburg, Va. that once served as Confederate general Stonewall Jackson’s winter camp. While the would-be miners argued that their operations would be good for the local economy, the Sheltons and their neighbors seized on zoning rules to try to block them, arguing they would provide too little benefit to outweigh added truck traffic, lost property value, environmental damage and disruptions to the local peace.

“She espouses this free enterprise notion,” said Emmett C. Snead, who found himself in the Sheltons’ cross hairs when he tried to start a sand mine near their home. “She says one thing in the world, and does a different thing here.”

Mr. Snead owns a farm just up the road from Moss Neck Manor, which Ms. Shelton and her husband have owned since 2005.

ImageEmmett Snead, who owns a farm near the Sheltons, found himself in a legal fight with them and other neighbors when he tried to build a sand and gravel mine near their home.
Credit…Ting Shen for The New York Times

In 2008, Mr. Snead wanted to mine a field he owns for sand and gravel, a hot commodity in this community upriver from the Chesapeake Bay. The land in question sits across from the road that leads to Ms. Shelton’s house, and she and her husband were among a group that filed a lawsuit to prevent him from doing so. The state Supreme Court ultimately decided in Mr. Snead’s favor in late 2013.

Ms. Shelton and her husband have also tried repeatedly to squash other proposed mines that they viewed as a threat to their bucolic community, which borders the Rappahannock River. The Sheltons filed a different complaint against a company owned by another neighbor, Larry Silver, over a project that they argued would detract from their property value and undermine their efforts at historic preservation. The complaint noted that Mr. Silver had also installed a “spiteful” hog farm on his property, which is adjacent to the road that leads to the manor.

Ms. Shelton did not respond to emailed requests for comment for this article.

Local land-use disputes have little bearing on Fed policy, but the disconnect between what Ms. Shelton says and what she actually believes have become an issue in her nomination.

She is a longtime critic of the central bank who has questioned its basic usefulness — asking “why do we need a central bank?” in a 2009 opinion column — but she actively courted a seat at its policy-setting table. She spent years criticizing low rates and easy money, but had a change of heart once Mr. Trump was elected to office. And though she has been a career-long champion for the gold standard, she downplayed that view during her bid to secure confirmation.

Ms. Shelton’s enigmatic background has fueled concerns about which version of the nominee would show up to the Fed, if she should win confirmation. Two Republican senators — Susan Collins of Maine and Mitt Romney of Utah — oppose Ms. Shelton’s nomination. Senator Lamar Alexander, Republican of Tennessee, has indicated that he would like to wait until after Congress passes a new coronavirus spending package to vote on her nomination.

“My major concern is that I don’t think that she will be independent enough,” Ms. Collins said last week.

If she loses four of the Senate’s 53 Republicans without gaining support from Democrats, she cannot win confirmation.

“We want to help her get through,” Mr. Thune told reporters last week, signaling that Ms. Shelton did not yet have the backing of enough senators. “When it’s right, we’ll move.”

Ms. Shelton has overcome Republican opposition in the past, hurdling early objections from the Senate Banking Committee to advance to the Senate floor on a party line committee vote. And Mr. Trump still “strongly backs” Ms. Shelton for the Board, White House economic adviser Larry Kudlow told The New York Times last week.

Even some of her one-time legal targets have come around to support her. Mr. Silver said in an email that his problems with the Sheltons had been resolved. “Judy Shelton is a great choice picked by President Trump,” he added.

She has drawn so much attention for a reason. Many economic commentators — including both Ms. Shelton’s supporters and detractors — have argued that she could be a candidate to replace the Fed chair, Jerome H. Powell, if she is confirmed and Mr. Trump wins a second term. Mr. Powell’s term expires in early 2022.

Credit…Erin Schaff/The New York Times

Mr. Kudlow said elevating Ms. Shelton to Fed chair was “never discussed.” If it happened, though, it would put a strident critic of modern central banks at the head of the most powerful economic policy setter in the world.

Ms. Shelton, 66, earned a doctorate in business at the University of Utah and joined the Hoover Institution at Stanford University in 1985, where she focused on the nature of money and wrote about the coming crash of the Soviet Union (which she advised to pursue a gold-backed ruble).

She began to push for a return to a system in which global currencies could be converted into gold, or some other rules-based monetary system — changes that would have upended the Fed’s modern function, which is to both maximize employment and keep inflation steady. It does so by making money cheaper or more expensive to borrow to guide demand, unfettered by the constraint of gold convertibility.

Her theories were offbeat, even then. Her colleague at Hoover, the famous free market economist Milton Friedman, responded to a 1994 Wall Street Journal column Ms. Shelton had written on stable exchange rates by saying that “it would be hard to pack more error into so few words.”

But her ideas found purchase among a crowd of right-leaning policy thinkers. She spent 1995 and 1996 as a staff economist for the National Commission on Economic Growth and Tax Reform, chaired by Republican politician Jack Kemp, plunging headlong into the supply-side economic orbit — a group that believed growth could be created by lowering taxes and reducing red tape. The Kemp circle was populated by people like Larry Kudlow, now the White House’s top economic adviser, and Stephen Moore, once a potential nominee for the Fed board himself and now a fan of Ms. Shelton’s.

“She believes in the idea that we need a monetary system that is pro-growth,” Mr. Moore said in an interview in the summer. “There’s this idea in the media that the Fed is like the pope — that they’re infallible.”

Mr. Kudlow supported Ms. Shelton’s nomination to the Fed and pushed to get her through the Senate Banking Committee, where Republicans initially expressed concern about her changing views.

That included a sharp reversal on low interest rates. Ms. Shelton had written in 2013 that “​loose monetary policy is bad for you and for your economic prospects.”

In 2016, she used an editorial to praise Mr. Trump, who at that time was also critical of low interest rates, writing that the presidential candidate believes that “the low-interest-rate regime engineered by America’s central bank has not stimulated real growth but has rather created a ‘false economy’ that could lead to the next global financial meltdown.” He understood that low rates were unfair because they boosted wealthy investors at the expense of savers with interest-bearing accounts, she said.

But when Mr. Trump won election, he began pushing for lower interest rates, and by mid-2019, so was Ms. Shelton. She told CNBC that July that the Fed should not “pull the rug out from under” Americans who were invested in the stock market.

Credit…Andrew Harrer/Bloomberg

She also reversed course on pushing for a currency anchor. In early 2009, she led a column with the sentence, “Let’s go back to the gold standard.”

When she testified before lawmakers in February 2020, she seemed to walk that back. Asked about the gold standard, she said, “I would not advocate going back to a prior historical monetary arrangement,” adding that “money only moves forward.”

Even so, Ms. Shelton’s disavowals of her prior stances are not clear-cut.

She has often justified lowering rates on a technical rationale: Ms. Shelton had objected to the Fed’s practice of setting overall rates by paying interest on bank deposits at the central bank. She has at times said that she would slash rates to unwind that approach.

And it is not clear that she has completely ditched her support of a gold standard.

She spoke similarly about money moving “forward” in a 2012 interview before offering a detailed plan for how the government could gradually transition to a new gold standard by issuing Treasury bonds that eventually converted to the commodity.

“I’m really building on the idea of issuing Treasury obligations redeemable in gold,” she said. “We’re trying to get back to the values, but forward to a new system of making money accurate and reliable once more.”

As recently as 2018, Ms. Shelton made a case that Mr. Trump had hinted at his support for gold, that his administration could undertake global monetary reform, and that doing so would restore “fiscal discipline” — not overspending out of government coffers.

“We make America great again by making America’s money great again,” she wrote.

Practically every mainstream economist opposes tying the value of the U.S. dollar to an anchor like gold, and many say it would be economically damaging.

“There would be real costs involved,” said David Beckworth, a senior research fellow at the Mercatus Center at George Mason University, adding that a return to a gold standard would be “destabilizing.”

Credit…Ting Shen for The New York Times


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The Trump campaign celebrated a growth record that Democrats downplayed.



The White House celebrated economic growth numbers for the third quarter released on Thursday, even as Joseph R. Biden Jr.’s presidential campaign sought to throw cold water on the report — the last major data release leading up to the Nov. 3 election — and warned that the economic recovery was losing steam.

The economy grew at a record pace last quarter, but the upswing was a partial bounce-back after an enormous decline and left the economy smaller than it was before the pandemic. The White House took no notice of those glum caveats.

“This record economic growth is absolute validation of President Trump’s policies, which create jobs and opportunities for Americans in every corner of the country,” Mr. Trump’s re-election campaign said in a statement, highlighting a rebound of 33.1 percent at an annualized rate. Mr. Trump heralded the data on Twitter, posting that he was “so glad” that the number had come out before Election Day.

The annualized rate that the White House emphasized extrapolates growth numbers as if the current pace held up for a year, and risks overstating big swings. Because the economy’s growth has been so volatile amid the pandemic, economists have urged focusing on quarterly numbers.

Those showed a 7.4 percent gain in the third quarter. That rebound, by far the biggest since reliable statistics began after World War II, still leaves the economy short of its pre-pandemic levels. The pace of recovery has also slowed, and now coronavirus cases are rising again across much of the United States, raising the prospect of further pullback.

“The recovery is stalling out, thanks to Trump’s refusal to have a serious plan to deal with Covid or to pass a new economic relief plan for workers, small businesses and communities,” Mr. Biden’s campaign said in a release ahead of Thursday’s report. The rebound was widely expected, and the campaign characterized it as “a partial return from a catastrophic hit.”

Economists have warned that the recovery could face serious roadblocks ahead. Temporary measures meant to shore up households and businesses — including unemployment insurance supplements and forgivable loans — have run dry. Swaths of the service sector remain shut down as the virus continues to spread, and job losses that were temporary are increasingly turning permanent.

“With coronavirus infections hitting a record high in recent days and any additional fiscal stimulus unlikely to arrive until, at the earliest, the start of next year, further progress will be much slower,” Paul Ashworth, chief United States economist at Capital Economics, wrote in a note following the report.


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Black and Hispanic workers, especially women, lag in the U.S. economic recovery.



The surge in economic output in the third quarter set a record, but the recovery isn’t reaching everyone.

Economists have long warned that aggregate statistics like gross domestic product can obscure important differences beneath the surface. In the aftermath of the last recession, for example, G.D.P. returned to its previous level in early 2011, even as poverty rates remained high and the unemployment rate for Black Americans was above 15 percent.

Aggregate statistics could be even more misleading during the current crisis. The job losses in the initial months of the pandemic disproportionately struck low-wage service workers, many of them Black and Hispanic women. Service-sector jobs have been slow to return, while school closings are keeping many parents, especially mothers, from returning to work. Nearly half a million Hispanic women have left the labor force over the last three months.

“If we’re thinking that the economy is recovering completely and uniformly, that is simply not the case,” said Michelle Holder, an economist at John Jay College in New York. “This rebound is unevenly distributed along racial and gender lines.”

The G.D.P. report released Thursday doesn’t break down the data by race, sex or income. But other sources make the disparities clear. A pair of studies by researchers at the Urban Institute released this week found that Black and Hispanic adults were more likely to have lost jobs or income since March, and were twice as likely as white adults to experience food insecurity in September.

The financial impact of the pandemic hit many of the families that were least able to afford it, even as white-collar workers were largely spared, said Michael Karpman, an Urban Institute researcher and one of the studies’ authors.

“A lot of people who were already in a precarious position before the pandemic are now in worse shape, whereas people who were better off have generally been faring better financially,” he said.

Federal relief programs, such as expanded unemployment benefits, helped offset the damage for many families in the first months of the pandemic. But those programs have mostly ended, and talks to revive them have stalled in Washington. With virus cases surging in much of the country, Mr. Karpman warned, the economic toll could increase.

“There could be a lot more hardship coming up this winter if there’s not more relief from Congress, with the impact falling disproportionately on Black and Hispanic workers and their families,” he said.


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Ant Challenged Beijing and Prospered. Now It Toes the Line.



As Jack Ma of Alibaba helped turn China into the world’s biggest e-commerce market over the past two decades, he was also vowing to pull off a more audacious transformation.

“If the banks don’t change, we’ll change the banks,” he said in 2008, decrying how hard it was for small businesses in China to borrow from government-run lenders.

“The financial industry needs disrupters,” he told People’s Daily, the official Communist Party newspaper, a few years later. His goal, he said, was to make banks and other state-owned enterprises “feel unwell.”

The scope of Mr. Ma’s success is becoming clearer. The vehicle for his financial-technology ambitions, an Alibaba spinoff called Ant Group, is preparing for the largest initial public offering on record. Ant is set to raise $34 billion by selling its shares to the public in Hong Kong and Shanghai, according to stock exchange documents released on Monday. After the listing, Ant would be worth around $310 billion, much more than many global banks.

The company is going public not as a scrappy upstart, but as a leviathan deeply dependent on the good will of the government Mr. Ma once relished prodding.

More than 730 million people use Ant’s Alipay app every month to pay for lunch, invest their savings and shop on credit. Yet Alipay’s size and importance have made it an inevitable target for China’s regulators, which have already brought its business to heel in certain areas.

These days, Ant talks mostly about creating partnerships with big banks, not disrupting or supplanting them. Several government-owned funds and institutions are Ant shareholders and stand to profit handsomely from the public offering.

The question now is how much higher Ant can fly without provoking the Chinese authorities into clipping its wings further.

Excitable investors see Ant as a buzzy internet innovator. The risk is that it becomes more like a heavily regulated “financial digital utility,” said Fraser Howie, the co-author of “Red Capitalism: The Fragile Financial Foundation of China’s Extraordinary Rise.”

“Utility stocks, as far as I remember, were not the ones to be seen as the most exciting,” Mr. Howie said.

Ant declined to comment, citing the quiet period demanded by regulators before its share sale.

The company has played give-and-take with Beijing for years. As smartphone payments became ubiquitous in China, Ant found itself managing huge piles of money in Alipay users’ virtual wallets. The central bank made it park those funds in special accounts where they would earn minimal interest.

After people piled into an easy-to-use investment fund inside Alipay, the government forced the fund to shed risk and lower returns. Regulators curbed a plan to use Alipay data as the basis for a credit-scoring system akin to Americans’ FICO scores.

China’s Supreme Court this summer capped interest rates for consumer loans, though it was unclear how the ceiling would apply to Ant. The central bank is preparing a new virtual currency that could compete against Alipay and another digital wallet, the messaging app WeChat, as an everyday payment tool.

Ant has learned ways of keeping the authorities on its side. Mr. Ma once boasted at the World Economic Forum in Davos, Switzerland, about never taking money from the Chinese government. Today, funds associated with China’s social security system, its sovereign wealth fund, a state-owned life insurance company and the national postal carrier hold stakes in Ant. The I.P.O. is likely to increase the value of their holdings considerably.

“That’s how the state gets its payoff,” Mr. Howie said. With Ant, he said, “the line between state-owned enterprise and private enterprise is highly, highly blurred.”

China, in less than two generations, went from having a state-planned financial system to being at the global vanguard of internet finance, with trillions of dollars in transactions being made on mobile devices each year. Alipay had a lot to do with it.

Alibaba created the service in the early 2000s to hold payments for online purchases in escrow. Its broader usefulness quickly became clear in a country that mostly missed out on the credit card era. Features were added and users piled in. It became impossible for regulators and banks not to see the app as a threat.

ImageAnt Group’s headquarters in Hangzhou, China.
Credit…Alex Plavevski/EPA, via Shutterstock

A big test came when Ant began making an offer to Alipay users: Park your money in a section of the app called Yu’ebao, which means “leftover treasure,” and we will pay you more than the low rates fixed by the government at banks.

People could invest as much or as little as they wanted, making them feel like they were putting their pocket change to use. Yu’ebao was a hit, becoming one of the world’s largest money market funds.

The banks were terrified. One commentator for a state broadcaster called the fund a “vampire” and a “parasite.”

Still, “all the main regulators remained unanimous in saying that this was a positive thing for the Chinese financial system,” said Martin Chorzempa, a research fellow at the Peterson Institute for International Economics in Washington.

“If you can’t actually reform the banks,” Mr. Chorzempa said, “you can inject more competition.”

But then came worries about shadowy, unregulated corners of finance and the dangers they posed to the wider economy. Today, Chinese regulators are tightening supervision of financial holding companies, Ant included. Beijing has kept close watch on the financial instruments that small lenders create out of their consumer loans and sell to investors. Such securities help Ant fund some of its lending. But they also amplify the blowup if too many of those loans aren’t repaid.

“Those kinds of derivative products are something the government is really concerned about,” said Tian X. Hou, founder of the research firm TH Data Capital. Given Ant’s size, she said, “the government should be concerned.”

The broader worry for China is about growing levels of household debt. Beijing wants to cultivate a consumer economy, but excessive borrowing could eventually weigh on people’s spending power. The names of two of Alipay’s popular credit functions, Huabei and Jiebei, are jaunty invitations to spend and borrow.

Huang Ling, 22, started using Huabei when she was in high school. At the time, she didn’t qualify for a credit card. With Huabei’s help, she bought a drone, a scooter, a laptop and more.

The credit line made her feel rich. It also made her realize that if she actually wanted to be rich, she had to get busy.

“Living beyond my means forced me to work harder,” Ms. Huang said.

First, she opened a clothing shop in her hometown, Nanchang, in southeastern China. Then she started an advertising company in the inland metropolis of Chongqing. When the business needed cash, she borrowed from Jiebei.

Online shopping became a way to soothe daily anxieties, and Ms. Huang sometimes racked up thousands of dollars in Huabei bills, which only made her even more anxious. When the pandemic slammed her business, she started falling behind on her payments. That cast her into a deep depression.

Finally, early this month, with her parents’ help, she paid off her debts and closed her Huabei and Jiebei accounts. She felt “elated,” she said.

China’s recent troubles with freewheeling online loan platforms have put the government under pressure to protect ordinary borrowers.

Ant is helped by the fact that its business lines up with many of the Chinese leadership’s priorities: encouraging entrepreneurship and financial inclusion, and expanding the middle class. This year, the company helped the eastern city of Hangzhou, where it is based, set up an early version of the government’s app-based system for dictating coronavirus quarantines.

Such coziness is bound to raise hackles overseas. In Washington, Chinese tech companies that are seen as close to the government are radioactive.

In January 2017, Eric Jing, then Ant’s chief executive, said the company aimed to be serving two billion users worldwide within a decade. Shortly after, Ant announced that it was acquiring the money transfer company MoneyGram to increase its U.S. footprint. By the following January, the deal was dead, thwarted by data security concerns.

More recently, top officials in the Trump administration have discussed whether to place Ant Group on the so-called entity list, which prohibits foreign companies from purchasing American products. Officials from the State Department have suggested that an interagency committee, which also includes officials from the departments of defense, commerce and energy, review Ant for the potential entity listing, according to three people familiar with the matter.

Ant does not talk much anymore about expanding in the United States.

Ana Swanson contributed reporting.


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