Knowing that President Trump will keep job creation his top priority tells us a lot about what to expect as his presidency matures. We believe that the Trump Administration will do whatever it takes to grow the real incomes of working people. This is as it should be in a democracy where working people now have so much voting power. In fact, the Commerce Department is already well along in the task of redefining the 10 million commodity codes used to track imports and exports of goods. In our judgment, higher tariffs on imports are already on the way to protect U.S. industries.
What may not be appreciated at this juncture is that the necessity to grow the real incomes of working families is so critical that the dollar has to be more stable than it has been since the U.S. went off the gold standard. Unlike the past two decades, where negative real interest rates fed speculation, a return to some form of gold support for the dollar will encourage workers to save. In the Trump Economy, money will flow from equities into interest bearing securities of all kinds. Interest paid on debt is going to rise and returns on equities are going to decline on trend.
In a world that is awash in paper money and is toying with adding digital money to the mix, gold will restore workers trust in money. The U.S. debt alone is over $20 billion. Many of the dollars we spent buying imports ended up in foreign central banks where they became reserves for the printing of another nation’s money. So much money has been printed around the world in the 21 years the strong dollar policy has been in effect that the ratio of fiat money to all the gold ever mined is higher now than it has ever been in recorded history.
Our monetary system is on the verge of failing and the only solution is to return to real money. American workers won’t be able to pay down debt they already owe unless real incomes grow.
Nobel prize winner Robert Mundell designed the Euro with a 13% gold reserve backing. That design, or something like it, is going to be necessary to get America on the right path. Some kind of gold standard is likely the only way to keep politicians honest over time.
The FRB will soon realize that American workers expect at least 2.5% real return on savings. We will go so far as to say that the longer it takes for average real family incomes to start climbing, the greater the danger that President Trump’s economic policies fail. A zero inflation economy is that critical.
One of the lessons of post World War II trade is that running giant trade surpluses is just as bad for a country as running big negative trade balances. The new rule in trade policy is “Neither a borrower nor a lender be.” Trade surpluses achieved in the 1970s and 1980s eventually led Japan to 25 years of economic malaise. The same scenario is playing out in China right now where the Chinese economy, after years of running enormous trade surpluses, now seems unable to avoid a prolonged economic slowdown of its own. Finally, take a moment to remember what Inca gold did to the Spanish empire or the short life the wealth that Genghis Khan’s conquests brought the Yuan Dynasty.
The Trump Administration is already farther along in making major changes than many realize. Against the Euro, the dollar has quietly lost 2.6% of its purchasing power since President Trump took office. The weaker dollar means that imports from Euro countries are 2.6% more expensive than they were in January, all other factors being constant.
Disclosure: I am/we are long Gold Mining stocks.