{"id":20499,"date":"2024-09-19T22:00:50","date_gmt":"2024-09-19T19:00:50","guid":{"rendered":"https:\/\/www.liberalglobe.com\/?p=20499"},"modified":"2024-09-19T22:00:50","modified_gmt":"2024-09-19T19:00:50","slug":"should-trump-restore-the-gold-standard-and-if-so-how-will-he-go-about-it","status":"publish","type":"post","link":"https:\/\/www.liberalglobe.com\/?p=20499","title":{"rendered":"Should Trump restore the Gold standard, and if so, how will he go about it?"},"content":{"rendered":"\n

During his presidential campaign, former President Donald Trump referred extensively to the issue of the inflationary vortex in which the US economy has been involved.<\/p>\n\n\n\n

In addition, he highlighted the importance of maintaining the dollar as the world’s main reserve currency by pointing to the possibility of the US imposing countermeasures on countries that abandon trading in the US currency, such as tariffs.<\/p>\n\n\n\n

However, he has said nothing about reforming the Federal Reserve and the US monetary system. Paradoxically, the most fundamental of all reforms\u2014returning the US to the gold standard\u2014would likely be the most important choice he could have if re-elected president in the area of \u200b\u200bmonetary policy.<\/p>\n\n\n\n

Wrongly, gold has been criticized by economic theory for years. Based on the strength of the classical gold standard before 1914, the US became an economic giant.<\/p>\n\n\n\n

By the turn of the 20th century, the US economy was larger in size than the next three economies \u2013 Germany, France and Britain \u2013 combined. Economic growth was faster and inflation was practically non-existent.<\/p>\n\n\n\n

Likewise, the quarter century under the gold standard of the Bretton Woods agreement \u2013 \u200b\u200bdespite much higher marginal tax rates \u2013 saw higher growth with lower inflation. If the post-1971 US economy had continued to grow at the rate it did under the Bretton Woods regime, it would be 20 times larger (about $5 trillion) today.<\/p>\n\n\n

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Previous gold-backed currencies collapsed due to mismanagement. World War I led states to suspend the classical gold standard.<\/p>\n\n\n\n

During the war, many states financed their spending by printing money and creating inflation. After the war, some states experienced hyperinflation – Germany being a prime example.<\/p>\n\n\n\n

Others returned to their pre-war exchange rates, facing severe deflation. The international nature of the gold standard had the characteristic of spreading deflation across the linked economies.<\/p>\n\n\n

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The resulting economic turmoil was so severe that almost all countries tied to the gold system, including the US (in 1933, under Franklin Roosevelt) devalued their currency against it. The recovery of economies generally began immediately after the devaluation.<\/p>\n\n\n\n

The US was an exception: high tariffs, tax increases, and strict regulation by the Hoover and Roosevelt administrations crushed the recovery and caused the Great Depression. The adoption of the Bretton Woods gold standard (1945-1971) had rules intended to avoid the extremes of hyperinflation and deflation.<\/p>\n\n\n\n

Unfortunately, the US, the key country in the system, caused inflation to levels incompatible with gold price levels. After a decade of high inflation, the US government faced a choice: engage in restrictive monetary policy, devalue the dollar against gold as Roosevelt had done, or abandon gold altogether.<\/p>\n\n\n\n

President Richard Nixon abandoned gold, resulting in a decade of stagflation and half a century of higher inflation, lower growth, and greater economic instability in the US and around the world. Both Roosevelt and Nixon used executive orders to manipulate the value of the dollar in terms of gold.<\/p>\n\n\n\n

If Donald Trump is re-elected he could do the same. The US president has the power to set the dollar’s exchange rate.<\/p>\n\n\n

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The legal framework of return to the norm and the lifting of the engagement with the IMF<\/strong><\/p>\n\n\n\n

The Treasury Department’s Exchange Stabilization Fund provides the President with a means to do so: Title 31, section 5302(b) of the US Monetary Code specifically authorizes the reserve to trade in gold.<\/p>\n\n\n\n

However, a 1976 amendment to the articles of agreement between the US and the International Monetary Fund, ratified by the US government and to Chapter 22, section 286e\u20135 of the US Monetary Code, prohibits member states from pegging their currencies to gold.<\/p>\n\n\n\n

Legal solutions may include using the gold price as a target without actually buying the metal at those price levels, or using gold-denominated securities until the IMF agreement is amended. A re-elected Trump could announce that he would set a price for gold based on the market price after a short adjustment period, say 45 days, to dampen speculative moves.<\/p>\n\n\n\n

Central banks could buy gold when prices are falling, as many investors would likely sell it to get the highest possible price.<\/p>\n\n\n

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Tightening of monetary policy<\/strong><\/p>\n\n\n\n

At the current market rate of about $2,500 an ounce, the value of US gold reserves of 260 million ounces is more than $650 billion, about 12% of the $5.6 trillion monetary base.<\/p>\n\n\n\n

While rising gold stocks over time would be healthy, this cover ratio will be accepted by the market. The gold standard is a commitment that any dollar can be redeemed for gold, not every dollar at once.<\/p>\n\n\n\n

If purchases are high, monetary authorities can buy gold on world markets as needed and tighten monetary policy. As long as the system is reliable, markets generally prefer to hold convenient paper cash (or its electronic equivalent) rather than heavy physical gold.<\/p>\n\n\n\n

Cooperation with China and the Eurozone<\/strong><\/p>\n\n\n\n

To bolster the plan, Trump could make the announcement in coordination with the other major global currency areas, including the Eurozone and China.<\/p>\n\n\n\n

A tripartite exchange rate peg based on gold would have the advantage of locking in the three major exchange rates and sharing the monetary responsibility more evenly.<\/p>\n\n\n\n

Because all three economic regions are giant economies with large reserves of gold, no member of the triad could easily cheat or dominate the system. The rest of the world would be free to fix their exchange rates to one of the three currencies or continue to manage the exchange rate as they do today.<\/p>\n\n\n\n

A new gold standard would help address key issues of concern to Trump.<\/p>\n\n\n\n

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  • Mainly, it will lock in low inflation.<\/li>\n\n\n\n
  • There would be no suspicion of currency manipulation \u2013 exchange rates would adjust based on market dynamics.<\/li>\n\n\n\n
  • The US trade deficit would likely shrink as many currencies would be “as good as gold”, reducing the need to stockpile dollars<\/li>\n\n\n\n
  • Huge speculative movements and volatility in financial markets and commodity prices would be avoided, enhancing trade and smoothing bilateral and multilateral transactions.<\/li>\n\n\n\n
  • The financial bubbles and crises of the last 25 years would have no place in this monetary environment.<\/li>\n\n\n\n
  • Gold would help reimpose fiscal discipline on governments.<\/li>\n\n\n\n
  • Finally, such a system would help poor states to achieve economic stability by potentially significantly limiting migration flows.<\/li>\n<\/ul>\n\n\n\n

    Fundamental currency reform is an uphill battle when it means a long battle in the Washington “swamp” and victory over the “deep state.”<\/p>\n\n\n\n

    President Donald Trump could make history by using his executive power to restore the global monetary system.<\/p>\n","protected":false},"excerpt":{"rendered":"

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