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:

  • India: Why its Attempt to Go Digital Will Fail
      India Reverts to its Irrational, Tribal Normal (Part XIII) Over the three years in which Narendra Modi has been in power, his support base has continued to increase. Indian institutions — including the courts and the media — now toe his line. The President, otherwise a ceremonial rubber-stamp post, but the last obstacle keeping Modi from implementing a police state, comes up for re-election by a vote of the legislative houses in July 2017.  No one should be surprised if a Hindu...
  • Moving Closer to the Precipice
      Money Supply and Credit Growth Continue to Falter The decline in the growth rate of the broad US money supply measure TMS-2 that started last November continues, but the momentum of the decline has slowed last month (TMS = “true money supply”).  The data were recently updated to the end of April, as of which the year-on-year growth rate of TMS-2 is clocking in at 6.05%, a slight decrease from the 6.12% growth rate recorded at the end of March. It remains the slowest y/y growth since...
  • How to Stick It to Your Banker, the Federal Reserve, and the Whole Doggone Fiat Money System
      Bernanke Redux Somehow, former Federal Reserve Chairman Ben Bernanke found time from his busy hedge fund advisory duties last week to tell his ex-employer how to do its job.  Namely, he recommended to his former cohorts at the Fed how much they should reduce the Fed’s balance sheet by.  In other words, he told them how to go about cleaning up his mess.   Praise the Lord! The Hero is back to tell us what to do! Why, oh why have you ever left, oh greatest central planner of all...
  • What is the Buffet Indicator Saying About Gold?
      Chugging along in Nosebleed Territory Last Friday, both the S&P 500 and the Nasdaq composite indexes closed at record highs in the US, with the Dow Jones Industrial Average only a whisker away from its peak set in March. What has often been called the “most hated bull market in history” thus far continues  to chug along in defiance of its detractors.   Can current stock market valuations tell us something about the future trend in gold prices? Yes, they actually...
  • The 21st Century Has Been a Big, Fat Flop
      Seeming Contradiction CACHI, ARGENTINA – Here at the Diary we have fun ridiculing the pretensions, absurdities, and hypocrisies of the ruling classes. But there is a serious side to it, too. Mockery makes us laugh. And laughing helps us wiggle free from the kudzu of fake news.   Is it real? Is it real? Is it real? Above you can see what the problem with reality is, or potentially is, in a 6-phase research undertaking that has landed its protagonist in a very disagreeable...
  • A Cloud Hangs Over the Oil Sector
      Endangered Recovery As we noted in a recent corporate debt update on occasion of the troubles Neiman-Marcus finds itself in (see “Cracks in Ponzi Finance Land”), problems are set to emerge among high-yield borrowers in the US retail sector this year. This happens just as similar problems among low-rated borrowers in the oil sector were mitigated by the rally in oil prices since early 2016. The recovery in the oil sector seems increasingly endangered though.   Too many oil...
  • Will Gold or Silver Pay the Higher Interest Rate?
      The Wrong Approach This question is no longer moot. As the world moves inexorably towards the use of metallic money, interest on gold and silver will return with it. This raises an important question. Which interest rate will be higher?   It’s instructive to explore a wrong, but popular, view. I call it the purchasing power paradigm. In this view, the value of money — its purchasing power —is 1/P (where P is the price level). Inflation is the rate of decline of...
  • Warnings from Mount Vesuvius
      When Mount Vesuvius Blew   “Injustice, swift, erect, and unconfin’d, Sweeps the wide earth, and tramples o’er mankind” – Homer, The Iliad   Everything was just the way it was supposed to be in Pompeii on August 24, 79 A.D.  The gods had bestowed wealth and abundance upon the inhabitants of this Roman trading town.  Things were near perfect.   Frescoes in the so-called “Villa of the Mysteries” in Pompeii, presumed to depict scenes from a...
  • Rising Oil Prices Don't Cause Inflation
      Correlation vs. Causation A very good visual correlation between the yearly percentage change in the consumer price index (CPI) and the yearly percentage change in the price of oil seems to provide support to the popular thinking that future changes in price inflation in the US are likely to be set by the yearly growth rate in the price of oil (see first chart below).   Gushing forth... a Union Oil Co. oil well sometime early in the 20th century   But is it valid to...
  • A Bumper Under that Silver Elevator – Precious Metals Supply and Demand
      The Problem with Mining If you can believe the screaming headline, one of the gurus behind one of the gold newsletters is going all-in to gold, buying a million dollars of mining shares. If (1) gold is set to explode to the upside, and (2) mining shares are geared to the gold price, then he stands to get seriously rich(er).   As this book attests to, some people have a very cynical view of mining...  We would say there is a time for everything. For instance, when gold went ...
  • Silver Elevator Keeps Going Down – Precious Metals Supply and Demand
      Frexit Threat Macronized The dollar moved strongly, and is now over 25mg gold and 1.9g silver. This was a holiday-shortened week, due to the Early May bank holiday in the UK. The lateral entrant wakes up, preparing to march on, avenge the disinherited and let loose with fresh rounds of heavy philosophizing... we can't wait! [PT]   The big news as we write this, Macron beat Le Pen in the French election. We suppose this means markets can continue to do what they wanted...
  • The Knives Come Out for Trump
      A Minor Derailment GUALFIN, ARGENTINA – Yesterday, stocks fell. And volatility shot up.   When too many people have too many knives out at once, accidental cubism may result   Reports Bloomberg:   The Dow Jones Industrial Average tumbled more than 370 points, Treasuries rallied the most since July and volatility spiked higher as the turmoil surrounding the Trump administration roiled financial markets around the globe. Major U.S. stock indexes...

Support Acting Man

Austrian Theory and Investment

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