No Country Can be Made Great by Devaluation

John Connally, President Nixon’s Secretary of the Treasury, once remarked to the consternation of Europe’s financial elites over America’s inflationary monetary policy, that the dollar “is our currency, but your problem.”  Times have certainly changed and it now appears that the dollar has become an American problem.

 

Richard Nixon and his treasury secretary John Connally. The latter is today mainly remembered for his remark on the dollar, which presumably gave European finance ministers a few nightmares at the time. Nixon defaulted on the gold exchange standard in 1971, which effectively ended the Bretton Woods agreement and led to the whole world adopting a fiat money standard. Nixon’s announcement of the default stands to this day as a textbook example of government lies and hypocrisy, garnished with a more than generous helping of economic illiteracy. It seems unlikely that he realized that his actions on that day would give birth to the greatest credit bubble in history, but they did.

Photo via twitter.com

 

In a recent interview with the Wall Street Journal, the soon to be 45th President of the United States believes that the greenback’s strength – up some 25% against a broad basket of currencies since 2014 – is now “too strong,” “killing us,” and has hurt companies trying to compete overseas.*

A top Trump economics advisor, Anthony Scaramucci, reinforced his boss’ sentiment adding that “we must be careful of a rising dollar.” Apparently, making America great again does not include the nation’s monetary standard.

Trump’s belief that the dollar is too strong also shows a distinct lack of historical understanding.  Every great nation and empire (which Trump promises to restore America to) had a sound monetary system.

 

Donald Trump probably sees a strong dollar as inimical to his protectionist program. Foreign trade is one area on which Trump is really out to lunch. Mercantilism and protectionism may be as popular as ever, but they are economic nonsense and an infringement of personal liberty to boot. Naturally, we are not confusing today’s managed trade arrangements with truly free trade – but neither currency devaluation, nor tariffs represent an improvement.

 

It is no coincidence that the pound sterling was the world’s “reserve currency” at the time when the British Empire was at its height.  Debasement of it to finance Britain’s insane decision to enter World War I led, in large part, to the eventual loss of its empire.

If Trump truly seeks to restore American greatness at home and its prestige throughout the world, devaluation of the currency is not the way to go.

 

Victims and Beneficiaries

Nor does a weakened dollar benefit the middle class whom the president elect throughout the campaign has pledged to help. In fact, it has been the fall in the purchasing power of the dollar due to the inflationary policies of the Federal Reserve which have decimated the living standard of the middle class.

And, while the proposed Trumpian middle class tax cuts will help, just as important is a sound monetary system if Middle America is to become a creditor class once again.

Pensioners and retirees, another group that Trump has promised to help, would continue to see their financial condition decline under a policy to weaken the dollar. A fall in the purchasing power of money would devastate the income stream of pensions and social security payments.

 

The shrinking dollar: since the establishment of the Federal Reserve, it has lost 96% of its value. Since that figure is based on the government’s own highly dubious price inflation statistics, the loss was probably even greater. Not to put too fine a point to it: this is not the way to get richer – click to enlarge.

 

While a weaker dollar policy would hurt the middle class, retirees, and savers, it would benefit those who are largely responsible for the continued economic doldrums of America – banksters and the government.  A weaker dollar would allow the government to continue to borrow and maintain its profligate spending.

Financial houses and bankers would receive credit at nearly zero cost, which would allow them to continue to blow bubbles in asset markets.  Export firms, too, would benefit  – at least for a while –  but would more than likely face retribution from foreign governments and central banks which would retaliate with their own devaluations, potentially sparking currency wars.

 

Sound Money is the Only Solution

Talk of “currency manipulation,” “weakening the dollar,” “trade deals,” and the like do not address what lies at the heart of not only America, but the Western world’s economic problem – too much debt.

The reason why the West has been able to incur its current gargantuan level of debt is not because of a “weak” or a “strong” dollar, but because the dollar is a fiat currency not backed by any commodity.

 

Total US credit market debt (last update at year-end 2015: $63.5 trn.) – this is indeed the largest credit bubble in history. It was enabled by the adoption of a full-fledged fiat money standard after Nixon’s default on the Bretton Woods gold exchange clause – click to enlarge.

 

A true gold standard, where each currency unit represents either gold or silver, provides monetary discipline which prevents politicians and bankers from incurring ruinous levels of debt.

Since money is the lifeblood of an economy, any hope that one can be turned around without a stable monetary order is, to say the least, delusional.  If president-elect Trump and his policy makers do not realize this, they will be severely disappointed in the years to come.

 

Conclusion

Sound money allows for the accumulation of savings and capital formation, the essential elements of the market economy and the only basis upon which real economic growth can occur.

More savings and capital are needed to boost production and create employment, not supposedly wiser and more competent international trade negotiators. Talk of currency devaluation is what is typically heard from banana republics, it should not be advocated by those who have aspirations of making their country great again.

 

References:

 

*Tyler Durden, “Dollar Tumbles After Trump Calls Currency ‘Too Strong,’ Slams Border-Adjustment Tax.”  Zero Hedge.  17 January 2017.

 

Charts by St. Louis Federal Reserve Research

 

Chart and image captions by PT

 

Antonius Aquinas is an author, lecturer, a contributor to Acting Man, SGT Report, The Burning Platform, Dollar Collapse, The Daily Coin and Zero Hedge. Contact him at antoniusaquinas[at]gmail[dot]com https://antoniusaquinas.com/.

 

 
 

Emigrate While You Can... Learn More

 
 

 
 

Dear Readers!

You may have noticed that our so-called “semiannual” funding drive, which started sometime in the summer if memory serves, has seamlessly segued into the winter. In fact, the year is almost over! We assure you this is not merely evidence of our chutzpa; rather, it is indicative of the fact that ad income still needs to be supplemented in order to support upkeep of the site. Naturally, the traditional benefits that can be spontaneously triggered by donations to this site remain operative regardless of the season - ranging from a boost to general well-being/happiness (inter alia featuring improved sleep & appetite), children including you in their songs, up to the likely allotment of privileges in the afterlife, etc., etc., but the Christmas season is probably an especially propitious time to cross our palms with silver. A special thank you to all readers who have already chipped in, your generosity is greatly appreciated. Regardless of that, we are honored by everybody's readership and hope we have managed to add a little value to your life.

   

Bitcoin address: 1DRkVzUmkGaz9xAP81us86zzxh5VMEhNke

   
 

4 Responses to “Donald and the Dollar”

  • wmbean:

    The problem of a monetary standard is that is cuts both ways. Money is a store of value to a certain extent. But what it represents is that third part to a transaction between buyer and seller that is mismatched. You want to sell apples and buy oranges, I want to sell pears and buy apples. We need a third party that will sell oranges and buy pears. We rely on money as a store of value to accomplish this exchange but it is still a third party to a barter system. This is the reality of money. Currency is simply another barter system only between nations who use different monetary systems. When we accept this concept then we must accept the concept that economic growth comes from either the growth of one’s population of from taking advantage of other nations. That is, if I can produce goods or services at a cost that I am acceptable to bear then I can sell to you at a price that is acceptable.

    I can hire here in the US in any state “Mexican” laborers at far less than the going rate for American union workers. Want to replace the carpet in your house with solid oak flooring? I can find the Mexican worker willing to work for half or a third of the hourly rate than the American union worker. So why should we be surprised that Germany produces goods for less because their labor unions accept less per worker? the principle is the same. Of course the birth rate for the German is less than the rate of reproducing the population. That is, the birth rate is falling and fewer “Germans” are being born, thus resulting in a net reduction of the population minus any immigrants. But then immigrants is another problem in the general accounting of a country’s GDP.

    So if President Trump can put us back on a gold standard what will happen? One can imagine an economic collapse due to the scarcity of money relative to the excessive amount of debt (you name the source). That is not likely to happen any tine soon. So what is left? Perhaps a gradual reduction of governmental debt? A willingness to let bad corporate debt and consumer debt fail? The fact is that as a nation and as a world we will be left trying to keep our individual and collective heads above water until we can’t. We cannot transition to a gold standard or any other ultimate standard gradually. It is an all or nothing affair. Once the few nations and then the many try to go back to an absolute monetary standard then demographics play a large part in GDP. Declining populations mean declining GDP in an absolute monetary standard world.

  • woodsbp:

    “Every great nation and empire (which Trump promises to restore America to) had a sound monetary system.”

    That was then – but not any more. Great states and empires were great at manufacturing and exporting – provided they could obtain the necessary raw materials at home or at significantly discounted prices from abroad. Production has been moved overseas and robots can operate for 24/7/365. You need more and more and more consumers with disposable incomes. If consumer incomes are insufficient – then shift to credit. Problem is debt expands faster than incomes: eventually its BOOM! time – again.

    “Sound money allows for the accumulation of savings and capital formation, the essential elements of the market economy and the only basis upon which real economic growth can occur.”

    “More savings and capital are needed to boost production and create employment.”

    Really? New or additional ‘savings’ can only come from your disposable income. See problem above.

    Creating employment? You have a natural increase in population – say 1% p/a, and possibly some nett immigration also. Now you need to expand your real (as opposed to financial) economic activity at something over 2% p/a – compounding. Then you have to account for the compounding increase in debts. Now you have to expand your domestic economy at something over 3% p/a – compounding. No longer possible. The required quantities of raw energy and materials need to advance the global economy of 7 bill souls by 3% p/a – compounding, are not available on this finite planet.

    We might manage a 1% p/a – simple interest style expansion of economic activity. But that won’t absorb an expanding population, allow for steady income increases, or boost government revenues or provide adequate pensions. Sound money is hardly an appropriate answer to any of those matters.

    Populism (or Political Realism) is alive and well and coming to a neighbourhood near you. “Gird your loins!”

  • If we go away from paper money, the only kind of money is gold and silver coin. Nothing else would last, as we have seen the game of gold exchange and other BS foisted by the credit bankers, who can never pay in a pinch.

    One only need look at Switzerland to see the value of stable money. The same held true of Germany, which still has a sizable manufacturing base, despite being a high wage country, prior to the Euro. The longer the US has trashed its money the worse things have become. One cannot accumulate capital by diminishing the measuring stick.

    The real reason for the dollar rally is international debt and the fact the dollar needs to be earned to keep the trade credit lines open. All these currencies are nothing but bank paper. They have little to do with the actual nations, just their bankers. Once the bankers have acquired what they want on an international basis, from around the world, the dollar will decline. That, or the IMF will come in and hold a fire sale.

  • At the same time the well articulated article explains what should be (for the sake of all) and serves a positive purpose, it appears – to me at least – as investment advice. That is, as I do not trust banksters (on gobmnt payroll or not), nor do I trust The Donald then I am assuming that not the sage advice of this article, but rather populist, quicky solutions will be de rigeur policy of the new administration.

    All the banksters around Trompus (Trump+POTUS>>???) will benefit even more from new QEn+1 and with the ego of TROMPUS, it will be not long before he is convinced that he, and he alone in recent history, can get the fiscal house in order with inflation a la TRUMP Tower magnitude, all under control of course.

    Yes, coming to an arena near you soon, the greatest of great battles. Pre-fight will be Godzilla, Super- & Spiderman Team vs. All the Avengers. Nothing compared to the main event: the great TROMPUS Inflation Printmachine vs. the Globusgobbler Disinflation Force!!! get your tickets now!!!

Your comment:

You must be logged in to post a comment.

Most read in the last 20 days:

  • Gold Sector: Positioning and Sentiment
      A Case of Botched Timing, But... When last we wrote about the gold sector in mid February, we discussed historical patterns in the HUI following breaches of its 200-day moving average from below. Given that we expected such a breach to occur relatively soon, the post turned out to be rather ill-timed. Luckily we always advise readers that we are not exactly Nostradamus (occasionally our timing is a bit better). Below is a chart of the HUI Index depicting the action since the January...
  • India: The next Pakistan?
      India’s Rapid Degradation This is Part XI of a series of articles (the most recent of which is linked here) in which I have provided regular updates on what started as the demonetization of 86% of India's currency. The story of demonetization and the ensuing developments were merely a vehicle for me to explore Indian institutions, culture and society.   The Modimobile is making the rounds amid a flower shower. [PT] Photo credit: PTI Photo   Tribal cultures face...
  • The Long Run Economics of Debt Based Stimulus
      Onward vs. Upward Something both unwanted and unexpected has tormented western economies in the 21st century.  Gross domestic product (GDP) has moderated onward while government debt has spiked upward.  Orthodox economists continue to be flummoxed by what has transpired.   What happened to the miracle? The Keynesian wet dream of an unfettered fiat debt money system has been realized, and debt has been duly expanded at every opportunity.  Although the fat lady has so far only...
  • March to Default
      Style Over Substance “May you live in interesting times,” says the ancient Chinese curse.  No doubt about it, we live in interesting times.  Hardly a day goes by that we’re not aghast and astounded by a series of grotesque caricatures of the world as at devolves towards vulgarity. Just this week, for instance, U.S. Representative Maxine Waters tweeted, “Get ready for impeachment.”   Well, Maxine Waters is obviously right – impeaching the president is an urgent...
  • Welcome to Totalitarian America, President Trump!
      Trump vs. the Deep State If there had been any doubt that the land of the free and home of the brave is now a totalitarian society, the revelations that its Chief Executive Officer has been spied upon while campaigning for that office and during his brief tenure as president should now be allayed.   Image adapted from the cover of “Deep State #5” - depicting an assassin from the future   President Trump joins the very crowded list of opponents of the American...
  • Searching for Truth
      Heresy or Truth? RANCHO SANTANA, NICARAGUA – In the fifth century, Christian scholars counted 88 different heresies. Arianism. Eutychianism. Nestorianism. If there was a way to “offend” God, they had a name for it. One group of “heretics” argued that there was no such thing as “original sin.” Another denied the trinity. And another claimed Jesus was not divine. Which one had the truth?   Depiction of the first Council of Ephesus in 431 AD, convened by Emperor...
  • Why the 21st Century Sucks - Turtles All the Way Down
      A Truly Sucky Century BALTIMORE – What an awful century! Worst we’ve ever seen. Household incomes are down. Employment is down, with 7 million people in the U.S. of working age without jobs. Productivity growth is down. GDP growth is down – to only about 0.5% per capita last year. Even life expectancies are down. Drug overdoses are up. Suicides are up. One out of every eight children lives in a family getting food stamps. One of out every eight adults takes psychoactive drugs...
  • Gold and the Fed's Looming Rate Hike in March
      Long Term Technical Backdrop Constructive After a challenging Q4 in 2016 in the context of rising bond yields and a stronger US dollar, gold seems to be getting its shine back in Q1. The technical picture is beginning to look a little more constructive and the “reflation trade”, spurred on further by expectations of higher infrastructure spending and tax cuts in the US, has thus far also benefited gold. From a technical perspective, there are indications that the low at $1045.40,...
  • The Unstable Empire – A Campfire Tale
      Campfire Tale   Caesar: The Ides of March are come. Soothsayer: Ay, Caesar, but not gone. — Julius Caesar, Shakespeare   GRANADA, NICARAGUA – Today, we stop the horses and circle the wagons. For 19 years, we have been rolling along, exploring, discovering. We began with the assumption that we didn’t “know” anything - so we kept our eyes open. Now we know even less.   Famous people who knew nothing and were not shy to admit it: Sergeant Schultz...
  • Off the Beaten Path in Mesoamerica
      Greeted by Rooster There’s an endearing quality to a steadfast rooster call at the crack of dawn when overheard from a warm country farmhouse.  There’s a reassuring charm that comes with the committed gallinaceous greeting of daybreak that’s particularly suited to a rural ambiance.  The allure of a morning cock-a-doodle-doo somehow falls flat in all other settings.   Good morning everyone! Before meteorological forecasts were available on TV and smart phones, people...
  • Why Silver Went Down – Precious Metals Supply and Demand
      Rumor-Mongering vs. Data The question on the lips of everyone who plans to exchange his metal for dollars—widely thought to be money—is why did silver go down? The price of silver in dollar terms dropped from about 18 bucks to about 17, or about 5 percent.   Reportedly silver was already assassinated in the late 19th century... so last week they must have assassinated its corpse. [PT] Illustration taken from 'Coin's Financial School'   The facile answer is...
  • Systematic Trading - Unwrapping the Onion
      Lumpy but Robust   [ed note: this article has originally appeared at the Evil Speculator and was written by trader and ES contributor Scott. We provide a link to Scott's past articles below this post for readers who want to get more familiar with his ideas and/or any unusual terminology used in this article]   One continual theme in my trading is that every time I think I have it figured out, I get punched in the face by an unexpected problem. The tendency is to go more...

Austrian Theory and Investment

Support Acting Man

Own physical gold and silver outside a bank

Archive

j9TJzzN

350x200

Realtime Charts

 

Gold in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Gold in EUR:

[Most Recent Quotes from www.kitco.com]

 


 

Silver in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Platinum in USD:

[Most Recent Quotes from www.kitco.com]

 


 

USD - Index:

[Most Recent USD from www.kitco.com]

 

THE GOLD CARTEL: Government Intervention on Gold, the Mega Bubble in Paper and What This Means for Your Future

 
Buy Silver Now!
 
Buy Gold Now!
 

Oilprice.com