Tag Archives: Gold Standard

Donald & the Dollar

donald-dollar

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.

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.  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, devaluating the currency is not the way to go.

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.

While a weaker dollar policy would hurt the middle class, retirees, and savers, it would benefit the most 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 the banksters would receive credit at nearly zero cost which would allow them to continue to blow bubbles in the 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 sparking potential currency wars.

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.  A true gold standard, where each currency unit represents either gold or silver, provides monetary discipline which prevents politicians and banksters 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.  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.

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

Antonius Aquinas@AntoniusAquinas

https://antoniusaquinas.com/

The Gold Standard: Friend of the Middle Class

In-Gold-We-Trust

It has been theoretically demonstrated and seen in general practice that a monetary system of 100% metallic money devoid of central banking checks monetary inflation, prevents a general rise in the price level, and eliminates the dreaded business cycle while making all sorts of monetary mischief nearly impossible.  A gold standard is not only economically superior to any paper money scheme, but is morally just, which is why it is hated by the politically well-connected, academics, politicians, and the rest of the Establishment.

Often not discussed, however, even by its proponents is the beneficial effect that “hard money” has for the middle class.

It is not a coincidence that since the U.S. left the last vestiges of the gold standard in 1971with President Nixon’s nefarious decision to no longer redeem international central bank payments in gold, real wages for Americans have stagnated.  Nixon’s decision to put the nation on an irredeemable paper money standard set it on a course of economic ruination, which is why he should have been hounded from office not for his role in the bungled, petty cover up at the Watergate.

Stagnating wage rates have been confirmed by a number of studies, take, for instance one from the Pew Research Center which states that “today’s average hourly wage has just about the same purchasing power as it did in 1979. . . . [I]n real terms the average wage peaked more than 40 years ago: The $4.03-an-hour rate recorded in January 1973 has the same purchasing power as $22.41 would today.”*

While the absence of the gold standard has impoverished laborers, it has benefitted (not surprisingly) the very wealthy – hence, the reason why it was abandoned, as the Pew Study reports: “What gains have been made, have gone to the upper income brackets.  Since 2000, usual weekly wages have fallen 3.7% (in real terms) among workers in the lowest tenth of the earnings distribution, and 3% among the lowest quarter.  But among people near the top of the distribution, real wages have risen 9.7%.”**

Of course, this was part of Nixon’s plan: redistribution of wealth from the middle class and low income groups via money printing to the political class.  Such a scheme, however, could have only happened if the gold standard was eliminated.

Since the start of the abominable Obama Administration in 2009, the adjusted monetary base of the U.S. rose from $1.772 trillion to $3.966 trillion as of March 16, 2016.***  Of course, even these unfathomable figures as well as all other information supplied by the dominant media and government cannot be trusted.  It, therefore, can be safely assumed that the real money supply is more than officially reported.

Money, like every other good, is subjected to the immutable law of supply and demand.  Every increase in the money supply reduces the purchasing power of the monetary units which are already in circulation.  Naturally, since wages are paid in dollars, increases in the supply of them will decrease their purchasing power.  Thus, while nominal wages have gone up as the Pew Study shows, real wages (what wages can purchase) have stagnated.

The decline in real wages over the decades from profligate money printing has resulted in lower standard of living for wage earners and those living on fixed incomes. The rise in two income families is, in part, a consequence of a paper money economy and the fact that the financial survival of families now requires two incomes.  Two-income families have also profound cultural implications which are now manifesting themselves.

There has been much talk throughout the current presidential campaign about the financial decline of the middle class.  Candidates on the Left naturally talk of subsidies and more redistribution of wealth while those on the Right have called for tax cuts. While tax reduction of any kind is always welcomed and leads to economic growth, a sound monetary policy is just as important for a revitalization of the middle class.  Moreover, a return to honest money does not require any expansion of government spending or debt.

If policy makers truly want to improve the condition of the middle class, which consists primarily of wage earners, a return to a monetary order of “hard money” is an economic and moral necessity.

*Drew Desilver.  “For Most Workers, Real Wages Have Barely Budged for Decades.”  Pew Research Center.  9 October 2014.

**Ibid.

***Jerome R. Corsi, “Obama’s Latest Fraud: ‘Economic Recovery’ Disproven in Just 9 Charts.”  WND Money.  3 March 2016.

Antonius Aquinas@AntoniusAquinas

https://antoniusaquinas.com/