Aug 7, 2019

Bonus Episode: Watch Party for the Fed’s Historic Interest Rate Cut

David Beckworth: Hey, Macro Musing listeners. This is a special bonus episode for all you die-hard fans out there. Last week the Federal Reserve made an historic change in policy by cutting interest rates for the first time since December, 2008. The Fed had been raising rates since 2015 so this is a major policy change and is expected by many to be the first of several more interest rate cuts this year. As part of this historic decision, our friends at Employ America organized a Fed watching party the day of the announcement in Washington DC. The party started just before the Federal Open Market Committee, which is the Fed's decision making body for monetary policy announced its decision and continued through the press conference of Jay Powell.

While transcripts are lightly edited, they are not rigorously proofed for accuracy. If you notice an error, please reach out to macromusings@mercatus.gmu.edu.

Beckworth: I took the Macro Musings podcast gear to the party and got the chance to interview some of the guests that were there both before and after the decision was announced. This bonus episode is comprised of those interviews. If you ever wanted to know what Fed watching enthusiasts do for fun, hopefully this bonus episode will give you a feel for it. There's nothing like breaking bread with fellow Fed watchers. Our show begins with Skanda Amarnath about an hour before the FOMC decision.

Beckworth: I'm now with the research director of Employ America here eagerly anticipating the July FOMC meeting. What can we expect, Skanda?

Amarnath: I think the baseline right now is for a 25 basis point cut. There's a little bit of risk of a 50 basis point cut if you look at markets. I think this could be a pretty historic occasion. We haven't seen a rate cut since the financial crisis, in December 2008.

Beckworth: All right, Skanda, give us your sense of the bigger importance of this meeting, kind of the historical context and why this is such a huge meeting.

Amarnath: So I think what makes this very striking to me is the fact that we have a low level of unemployment, but we are seeing the Fed get more reactive to the downside risks to growth than maybe a very strict version of a Taylor rule would suggest. And I think that's for the better. When you think about the breakdown of the Phillips curve or at least the flatness of it, the fact that we aren't seeing the heat from a hot labor market, and I think Powell is appreciating that. But I think also the reaction function is really shifting away from this sort of very Phillips curve centric view of the world.

Beckworth: Do you think it's just Powell, Clarida, others?

Amarnath: Yes. I mean I think that it seems like the committee is a little bit split in terms of the urgency to cut and what warrants an ease of policy. But it's also interesting to contrast how the Fed's reacting now versus what they did in late 2015 when they hiked rates in a pretty similar backdrop of very weak global growth that was showing signs of spilling back to the US. Now, the Fed seems to be more inclined to cut and it kind of, it makes us wonder how necessary a lot of these hikes were at this point. I mean if you look at even their equilibrium unemployment rate projections in the SEP (Summary of Economic Projections that they release every quarter) there's been a very cyclical-like quality to their structural unemployment rate projections. So it almost, you can say the Fed keeps getting it wrong in terms of how much slack there is, or where that sort of u-star is and where the r-star is, seems to be a lot, we keep learning that it's lower than we previously anticipated, or at least where the Fed anticipated.

Beckworth: Yes, great stuff.

***

Beckworth: We're now with Sam Bell of Employ America. Sam, glad to have you back on the show.

Bell: Glad to be here, David.

Beckworth: So tell us about this event you've organized here. We are here at Madhatter in Washington, DC, Connecticut Avenue, a bunch of FOMC fellow fans, nerds, whatever you want to call us. We're here together to watch this event. You've organized it. This is your second one. What do you hope to get out of this?

Bell: Well, we have the punchbowl here, David, and we're all ready for the first cut in quite a long time. So we were all going to be watching it at our computers and talking about it over Twitter and email, so our idea was just to bring everyone together, have some food, have some drinks and discuss it in real time.

Beckworth: What is your expectation for today?

Bell: Well, I think the most interesting part is how, well they're definitely going to cut 25 basis points. And I think the more interesting point will be how Powell messages future policy. I think he will probably be very cautious about signaling more cuts. But if I'm guessing, I think he's probably going to say we're open to data weakening further and us needing to cut further, but he's going to lay it all on the question about future data coming in. So I don't know, I mean, people have said to me that there might be a very adverse reaction because people will think this is hawkish, his messaging, and if he doesn't signal, we're definitely going to start a process of further rate cuts, it will upset folks in the markets. I don't know, this will be the first meeting since the Humphrey Hawkins testimony where Powell talked about fiscal policy and whether that should play a bigger role in the next downturn, where he was quizzed a little bit about tools and where he was asked a little bit about frameworks, inflation, average inflation, et cetera. So I hope there's some questions about the Fed review and what he's planning in that regard.

Beckworth: Speaking of that testimony, were you pleasantly surprised with the quality of questions on the House side?

Bell: Yeah, I think, I was. I think there's still room for members to get more up to speed on monetary policy issues, but I think we're seeing better questions and I think what's being revealed to the Fed is there's really a bipartisan interest in labor market issues. The same issues, Powell's talking about, labor force participation, how do we get more wage growth. You're seeing questions from both sides of the aisle trying to dig in on that. Obviously asking if the Fed has a role to play in furthering the trends we're seeing around participation and yeah, so that was good. Obviously we were, the press around the AOC [Alexandria Ocasio-Cortez] question was unheard of in, I mean there must've been 12 articles just about her back-and-forth with Powell, which is really good. I mean I think she used her spotlight to highlight a pretty important issue, which is the Fed has overestimated full employment for so long.

Beckworth: I think she got a major concession from Chairman Powell when he said absolutely. I mean that's a pretty astounding admission that they'd been wrong over the past half-decade.

Bell: Yeah. Powell's an interesting character. I mean if Steve Williamson's listening to this, I'm sure he's going to be upset with me saying this because he doesn't think Powell has the requisite economics chops and I know that that's a view held by some, but he seems pretty flexible as a thinker, as a policymaker – in a good way – and he seems pretty interested in our labor market issues and pretty straightforward and not trying to sort of defend the institution's honor by saying, "No, no, no. We were all right, you've just misunderstood this” or something. So I'm pleasantly surprised with how he's talking about labor market issues and I think it's worth saying that a lot of this, Janet Yellen started talking about and he's continuing talking about it, but I think it's good.

Beckworth: It is refreshing.

***

Beckworth: Okay, here we are back at the Madhatter, getting ready for the big FOMC meeting. Please share your name and then tell us a little about yourself.

Soumaya Keynes: Sure. I'm Soumaya Keynes. I cover the U.S. economy for The Economist. Our weekly print cycle is very awkwardly timed for FOMC decisions as normally I have to file my copy on Tuesday nights and obviously the decisions come out on Wednesdays. So I'll let you into a little secret, but there's a pre-written version of what the Fed is about to do and I'm going to have a very bad afternoon if the Fed does not do what I think they will do.

Beckworth: I trust your prophetic skills are very good. So we're about to see if the Fed will cut rates as everyone expects. And recently Greg Ip wrote a column in the Wall Street Journal where he argued one of the reasons, the contributing factors might be that the ECB is easing again, which is kind of unusual because typically we think of the Fed's setting the pace, setting the standard for the global economy. But this would imply the Fed was following the Eurozone. So any thoughts on that?

Keynes: Yeah, I think historically there was this idea that the Fed didn't really consider global factors when making it interest rate decisions and perhaps it didn't consider them enough. And I have definitely been hearing that recently there's been an awakening to the idea that you really do have to consider global interest rates. If everyone else is loosening while you're not loosening, that effectively means that you're, by standing still your kind of tightening. And so the Fed has to take that into account.

Beckworth: So it has to be sensitive, mindful, at least more than it was in the past of global factors.

Keynes: Yeah. And if you listen to Jay Powell's comments, it's all about global crosscurrents, global risks. It doesn't seem like this move if it does happen, is going to be driven by huge concerns showing up in the domestic U.S. data, it's really kind of risks from the rest of the global economy.

Beckworth: Now you have a very famous podcast of your own, Trade Talks.

Keynes: Very famous.

Beckworth: With Chad Brown.

Keynes: So famous.

Beckworth: Yes. I listen to it. So people ask, "What do you listen to David?" I listen to Trade Talks, one of the podcasts I listen to and one thing that where our two areas kind of lap over is some of this recent discussion about the U.S. Government via Treasury intervening in foreign exchange markets as a way to manipulate trade conditions. But in my view it could also be viewed as a run around, around Fed policy. Trump doesn't like what the Fed's doing, it's not doing enough to bring down the value of the dollar, so he'll do his own thing.

Beckworth: I've talked to Joe Gagnon about this, had him on the show recently and he has proposed enhanced tools for the Treasury, to respond in a systematic rules-based approach. What concerns me is Trump is not someone who's going to do it in a rules-based approach. He's going to throw everything he can. He threw tariffs, he was going to throw tariffs at Mexico over immigration. He wants to use his intervention ability to get better trade positions, even if it's as you said, not directly related. So does it concern you that you're giving a very powerful tool to someone who may not use it wisely?

Keynes: Absolutely. Absolutely. And in fact, I wrote a piece in The Economist last week saying exactly that. I think that for someone like Joe Gagnon who's been arguing for this quite carefully thought out policy, you would do it under very narrow specific circumstances, there'll be clear criteria set out. There's some thinking maybe that now is an opportunity for that firepower to be added to the Treasury. You need congressional approval to increase the amount of firepower so that this policy could be operational. And as you say, the financial firepower, that granting that would hand to Trump is huge. And we're thinking hundreds of billions, maybe trillions of dollars. And so it's kind of funny where if you're someone who's been pushing this proposal for years, it now looks like suddenly there might be this moment where you could get it through and then perhaps it would be used by future administration and would be used more wisely.

Keynes: But this president is exactly the reason why you really would want to think twice about handing so much power to the executive branch. And I would be very worried given the President's willingness to defy the spirit of trade laws as they were written to sort of apply whatever sticks he can on partners he doesn't like. Given his willingness to just ride roughshod over the spirit of those laws, I'd be very worried about him using the tools in the way that they were meant to be used.

***

Beckworth: Okay. Here we are back with another guest. Please share your name and what you do.

Ryan Avent: My name is Ryan Avent. I am an economics columnist with The Economist.

Beckworth: And you are a friend of the show. You've been on several times.

Avent: I like to think of myself as a friend of the show.

Beckworth: You have the nominal GDP targeting mug.

Avent: I do, I have it on my desk at work.

Beckworth: So here we are at the Madhatter at the FOMC party and we're getting ready for the big reveal. I think we all know what's going to happen, will be a rate cut probably at 25 basis points. But one of the big issues facing the Fed and all the central banks around the world is this downward march of interest rates. Many, many countries now, at least advanced economies, have long-term yields that are close to zero. Some of them are negative.

Beckworth: Switzerland had, I believe it's entire yield curve negative briefly for a while, a week or two ago and there's been several papers that show that it's 30 to 40 percent of the time in the future we'll be at a zero lower bound. So we're cutting rates here, we're happy about that, but there's a bigger war in front of us, so should we be worried about that and what should we be doing?

Avent: We should definitely be worried about it I think. And it's the point where we are now where it seems like the Fed is going to go from hiking to cutting at a far lower level than it ever has before. We're like 2.4 percent now. We've known that was going to be the case for a long time and we've known that that's a problem because I think we shouldn't have a lot of confidence that central banks can do everything that they need to do when interest rates fall to zero. Potentially they could if they changed their frameworks and things like that.

Avent: But once we're in this unconventional world, we can't be as confident as we would like to be, that monetary policy can do what it needs to do. And so it seems like America is not, it's only somewhat exceptional in the sense that, unlike Europe, unlike Japan, it did get off zero for a couple of years, but not nearly far enough and we can be pretty sure that during the next downturn zero is going to be back. And so as I think about what Jerome Powell is going to say today, to me, the question is not just about the rate cut, but kind of what's the language that goes along with it. Is there any acknowledgement that this constraint is still there? Is there any discussion about what the Fed's going to do to make sure that they don't end up in a situation like the Europeans where, throughout the entire boom, 10 year bonds stay in negative territory and so on.

Avent: So I think this is not something that's going to go away. I feel like our demographics, and things like that are a little better than Europe's, but it's probably only a matter of time, assuming nothing else changes with the monetary framework that we find ourselves in the exact same situation that Japan and Europe are in.

Beckworth: Yeah. I fear that long-term yields are going to continue to go down to the point where QE really is not going to be able to do much. There's some debate whether it did much in the past. I think it had some effect, but the effect that it did have, I think it's going to be diminished, if we see our 10 year treasury get close to 0 percent.

Avent: I think one thing that I worry about, especially in the current political environment is when you think about the different channels that QE might work through, if long rates are already super low and things like that, then you're going to get most of your, the bang for your buck, I think probably through exchange rates and through movements and currencies. But that's a zero-sum game or at least a lot of people are going to see it as a zero-sum game and that's not a world we want to be in, not when people are talking about trade wars and tariffs.

Avent: We've already seen Donald Trump being quite upset with the Europeans just because the ECB talking about doing something to prop up the European economy led to the euro falling and that was seen as a hostile act by Trump. So we're way too close to a world in which monetary policy becomes zero-sum and it doesn't have to be, but that's where you are when you've got this framework at the zero lower bound.

Beckworth: Yeah. For me, it's not hard to imagine where five, 10 years in the future and all the 10 year bonds, all the long-term benchmark interest rates are at zero or slightly below.

Avent: Well, it's kind of funny that we end up talking about this, I think 20 years ago if you had said to people, "Look, we're going to enter a world in which it seems like rates on government bonds, long-term government bonds are going to be negative for the foreseeable future." Everyone would've said, "That's not going to be a problem because governments will just start borrowing, borrowing, and borrowing." And maybe that'll end up being the case. Obviously fiscal discipline in the U.S. isn't quite what it used to be, but no place is as negative as Europe is. And there's just a huge amount of reluctance there to let budgets do any of the work. So it's just a bizarro sort of world where governments can, are just being handed money by the markets.

Beckworth: It is bizarre and maybe it won't go on forever. Maybe there'll be some kind of discontinuous jump where yields jump up way up in the 1970s again. But I find that hard to believe. I think we're on a path for some time that's going to keep pushing us down. And so we need to be ready to think about that and have the tools that deal with it. And my hope is the Fed is seriously taking its review this year.

Avent: Well, I certainly hope they will. I mean, it's good that they're officially talking about it. Economists have been talking about this for a long time. It's not like there's been any shortage of discussion or shortage of policy suggestions. So to me the real question is what would make the FOMC feel the sense of urgency about the need to change and I sort of think it's not going to happen until we're back at zero and struggling to get out of a recession again. And then finally that might be there and that's not a thing to look forward to, but it may be what it takes.

Beckworth: All right, well thank you Ryan.

Avent: Thank you David. Always a pleasure.

***

Beckworth: Okay, so there we were waiting for the big moment and then the Fed made its announcement. It would cut its target rate by a quarter of a percent. The guests at the party were happy but not the markets. They were disappointed and began to retreat right after the decision was announced. I was a bit perplexed by this response. So I turned once again to Skanda Armarnath, who's the Research Director for Employ America, for some answers.

Beckworth: All right Skanda, so what was the news?

Amarnath: So it looks like with the Fed’s cut, because it was already priced in and actually a little more so, when you think about the risk of a 50 basis point cut embedded in this meeting. We've seen at least the initial market reaction being a little bit disappointed by the lack of further dovish overtones of the statement. So it's been marginally hawkish relative to market pricing, I think that sort of now shapes, going into the press conference, how Powell is going to either leave the door more open or a little less open, to rate cuts going forward. But we're seeing that the front end of the treasury curve is sold off. So we see higher yields, lower equity prices and a stronger dollar at the margin.

Beckworth: So 25 basis points wasn't enough?

Amarnath: Yup. At least in terms of what the market priced in – the market priced in some tail risk of a 50 basis point cut. But I think now it's a question of what Powell signals about the future that's going to be more important.

Beckworth: Okay. So we'll check back in with you after the press conference.

Amarnath: Sounds good.

***

Beckworth: So we sat through the post-FOMC press conference with Jay Powell. I'm a big fan of Jay, but this press conference didn't go as well for him as some of his previous ones. The reporters were combative, pushing him hard, given the big policy change and he pushed back himself. Maybe this give and take should have been expected, but it didn't lend itself to calming the markets. They seemed really agitated with the press conference. For insights into the market's response, I first turned to Nick Bunker of Indeed Hiring Lab, and then to Skanda again. Why were the markets acting this way? I wanted to know.

Nick Bunker: I think at least squashing the reactions at this meeting, the press conference is going on, seemed like people were taking this as a kind of one-and-done. I think it's less that and more a one-and-we'll-see. I think what Powell was trying to get across was that they've seen uncertainties increase, but they are, it's that level of uncertainty isn't increasing but still there and they want to be data dependent, which I think the way Powell's been really moving away from forward guidance and this is a sign of we're going to cut right now because of what we're seeing, but we're not quite sure that we'll need to cut again, but we want to leave that possibility out there. But they're trying not to bind themselves while still being alert to the fact that those trade tensions could flare up again anytime soon.

Amarnath: Yeah. I have this phrase I like to point out that the Fed cuts when it gets priced in, when it gets embedded in expectations, so what they did today is really a formality. We've already started to see the positive effects of the rate cut through lower mortgage rates, a dollar that would be weaker than otherwise would be the case had they not cut, had the market not expected them to cut. So if you take that logic forward, we do have more cuts priced in and I would hope if Chairman Powell really wants to support the outlook, that he really acknowledges that in order to support the financial conditions that are in place for that outlook, he's also going to sort of continue to sort of align himself with those conditions itself, which means that they do need to go forward with rate cuts itself.

Amarnath: We're already seeing that more uncertainty that they place around this, I think the question we have to ask is why? Why would they feel comfortable cutting, and feel comfortable ratifying market expectations beforehand, but all of a sudden sort of try to pull the rug underneath the market expectations at this point. I think the reasons for cutting are pretty valid, but then you kind of have to take that logic forward. It makes sense for them to proceed further down the line.

Beckworth: All Right, well thank you gentlemen.

Amarnath: Thank you.

Bunker: Thanks, David.

***

Beckworth: So there you have it. One fun FOMC watching party. Thank you Employ America for hosting it. Now since this recording a week ago, markets have further weakened with key interest rates like a 10 year treasury yield, dropping to new lows. On Monday, the stock market took a beating and experienced its biggest decline in 2019. A lot of this is tied to the intensifying trade war between the U.S. and China, but it is spilling over into monetary policy. Markets as of this recording are pricing in a high probability of at least two more rate cuts this year. More Fed drama to come, so stay tuned to Macro Musings for more. For those really die-hard Macro Musings fans, we have an extra special bonus that follows, a bonus to the bonus. How about that? It too was recorded the FOMC party but was unrelated to the FOMC decision itself. Instead it was a chat with Sam Bell about Board of Governor nominee, Judy Shelton. Enjoy.

Beckworth: What have you discovered about Judy Shelton and your recent forays into her writings and past work?

Bell: So, Dr. Shelton is an intended nominee. She hasn't actually been nominated. The paperwork has not gone through as of yet, July 31st and that's important because as your listeners may remember, Stephen Moore and Herman Cain were never actually nominated, they were pulled before an actual nomination happened. There's a lot to say. I mean, Dr. Shelton has been commenting on monetary policy for decades. I've tried to read everything she's written, all her press interviews. She's a disciple, I think she would consider herself a disciple of Bob Mundell, the Nobel Prize winner. But for a long, long time she's talked about the need to return to a gold standard and specifically the need to have gold convertibility. And I think her ultimate aspiration is to have a global common currency. She's talked about this a lot and take all discretion away from central bankers, basically make them irrelevant.

Bell: And I think there's steps along the way that she articulates, right now she's been talking about a gold linked bond where, an idea that Alan Greenspan talked about in 1981. But before that she was talking about common currency areas in North America. So she talked about a North American common currency area, an Asian common currency area to go with the EU in order to minimize currency instability. But I think the thing that sticks out most is during the early years of the recovery, she was vociferous in her opposition to Fed policy and talked about it not just as an inappropriate policy, but sort of as an immoral, un-American, sort of low rates are a violation of American principles, are going to lead to the demoralization of democratic capitalism and we need to restore a sort of moral integrity to money.

Bell: And in the last two years that's slowly receded. And now as she's up for a nomination, it seems like it's completely receded. And now the person who was talking about how dangerous low rates are, if she was confirmed, would be the most dovish member of the FOMC. If she follows through with what she says she wants, which is a 50 basis point cut. So I think there's a lot to puzzle over. It's an interesting nomination because I don't think she ever thought she was going to be in this position. So now she seems like she's trying to backtrack on a lot of the things she's written previously. But I think there's a lot to chew on and it's still unclear to me whether she'll have support to get nominated, let alone confirmed.

Beckworth: Yes, the recent Politico article raised some doubts or at least made apparent some doubts in the Senate.

Bell: Yeah. So Senator Shelby and Senator Collins are both on the record as being skeptical of nominees who are advocating a return to the gold standard. And there might be other concerns as her nomination proceeds. Republicans have a four vote margin in the Senate, so she probably needs to hold all Republicans to get confirmed.

Bell: And that might be hard depending on, depending on how the hearing goes, depending on ... There's a number of conservative scholars who've already come out against her nomination, writing critically about her nomination. So yeah, and I just don't see the appetite for a return to the gold standard. I don't see an appetite for a Global Monetary Authority in the way she's talked about. I don't see an appetite for gold convertibility. I mean she's said, and George Selgin has pointed out to me that this, she's not alone in saying this, but for her gold convertibility, it has to be as tough as you and I being able to go turn our dollar bills in for gold coins. And that's the way to discipline central banks so they can't mess with the system. And I just don't know if that sort of vision is going to be supported in the Senate and particularly because, these Senators aren't stupid.

Bell: They know that Powell is not going to get reappointed if Trump is reelected. And he seems upset with the whole Fed now. So you have to think if you're a Republican Senator who is going to, are we setting this person up to become Fed chair if she gets confirmed to the Fed Governor seat. Your listeners will probably know that Powell, before he was Fed chair was a Fed Governor, Yellen before she was Fed chair was twice a Fed Governor, Bernanke before he was Fed chair, was a Fed Governor and Paul Volcker was New York Fed President before him. Anyway, so these are, the path to becoming Fed Chair has in the very recent past gone through the Fed Governors seat first. So I would think that if she was confirmed as a governor, she would immediately become the front runner to become Fed chair and then it's Trump in the next term we'll have other vacancies open to him and at that point she'll have a lot of power to dictate Federal Reserve strategy frameworks, et cetera.

Bell: She's talked before about having a Bretton Woods conference at Mar-a-Lago, she said this multiple times. There's a lot of things you can do sort of unilaterally as Fed Chair, obviously there's a lot of stuff you can't do unilaterally. But I think that will be on the minds of Senators as they consider this nomination, I would think.

Beckworth: So just to recap, her vision, if she could wave the magic wand, it'd be number one, to set up a North American currency area – so like Mexico, U.S. and Canada have one currency, something similar in Asia, like we have in Europe. Do that for some period and transition where all of those currency areas are linked together and kind of a new Bretton Woods arrangement.

Bell:  She talked about that more when she was a professor in Monterrey, Mexico and advising Vicente Fox's government. My impression from reading through stuff at the time is he wanted closer links. He was interested in a common currency area. This was after the peso crisis. And she did talk a lot about a North American common currency area. She testified before Congress about it.

Bell: Yeah, and the idea would be to build a global common currency through regional blocks. She's talked less about that recently and more about the idea of tying Chinese and US, having a fixed exchange rate between China and the United States through both countries issuing gold link bonds. So that has been the more recent ... But I think the goal is still pointing the same direction, which is the two critical things are, any system has to be a global system. And the discipline of the system requires gold convertibility, not just for central banks.

Bell: So this was her critique of Bretton Woods is okay, central banks had the ability to convert their dollars into gold, but individuals didn't. So she wants convertibility for individuals and she wants a global system and she's sort of rotated around different ways to build up to getting there.

Beckworth: So she wants a Robert Mundell world one way or the other, whether that was through her vision when she was in Mexico or more modern version of that with the gold link bonds.

Bell: Yeah. I haven't read all of Mundell so I don't want to claim that everything she has said is consistent with what his writings are. Mundell is credited as being the godfather of the euro, and she has gone back and forth around why the euro is struggling so much. I think both of them want to resist the analysis that it's because there's a common currency.

Bell: At various times they've said, "Well, it's because of currency instability with other euro verses dollar or euro verses the Asian currencies." Other times they've said, "Well, the southern Europeans just haven't made the fiscal policies that are needed." Anyway, I wouldn't want to talk too much about, I would be talking out of school if I said I knew everything about what Mundell thinks right now. But yeah, what she has talked about in both her books and her articles through time and on her Twitter account, if you look through is common currency area globally. She wrote, your listeners might be interested in a paper she wrote for Cato in 2012 which sort of really tried to nail down what the global apparatus would look like. There might be a universal Gold Reserve Bank for a time that helped individual banks do open market gold operations.

Bell: Anyway, it's more detailed than I can recite from memory, but to her credit, she will say, "It doesn't have to be gold." But then she says, "Well, gold has been this universal store of value for so long. Why wouldn't it be gold?" Oh, and I should say, at other times during the recovery, the Bretton Woods approach is very much a, the heads of government, the heads of central banks sit around the table and agree. At other times she's talked about a more grassroots approach to achieving this vision, which is, could the state of Virginia, abolish legal tender laws and allow citizens to make payments in gold? And if that caught on in Virginia, not only would Virginians be prepared for the collapse of the dollar, but it could catch on.

Bell: In other states, the authorities could see people like using gold. It builds up. Indiana passes the Indiana Honest Money act, they start exchanging in gold. Utah has already abolished some of their legal tender laws, I think I'm correct on that. So she's also talked about it as sort of a… which would be obviously highly unusual for a Fed governor to, if she continued to encourage states to experiment with that, that would be a highly unusual position for a Fed governor to be taking if she was confirmed, let alone a Fed chair.

Beckworth: A Fed chair even more so. Okay. Thank you Sam.

Bell: Thank you.

Beckworth: Macro Musings is produced by the Mercatus Center at George Mason University. If you haven't already, please subscribe via iTunes or your favorite podcast app, and while you're there, please consider rating us and leaving a review. This helps other thoughtful people like you find the podcast. Thanks for listening.

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