federal reserve facade 1
The facade of the Federal Reserve Bank.

Wealth & Poverty Review The Trump Dollar is on Track to be the Weakest of All Time

Originally published at Gilder Press

Folks, watch them dance, US pols are exultant about the dollar!

Despite the volatility and noise of virus, money manipulation, trade war, high tech disruption, and debt explosion, our leaders believe that the buck is a bastion of value.

Amid the $6.7 trillion a day of currency shuffling in Vanity Fair — some 25 times world GDP and up some 30% in three years during a trade collapse — the dollar is floating and flapping on the Federal Reserve fortress like a triumphal banner of monetary stability in an ocean of froth.

Fed Chairman Jerome Powell is basking in glory as the dollar seems to be slip sliding near the Euro. And at least it’s not Brazil’s real or Argentina’s swooning peso!

This is the theory of financial relativity that has been sinking world money since 1971. Seth Lipsky of the New York Sun compares the happiness at the Fed to the thrill of a passenger on a plummeting plane when he sees that the guy across the aisle is losing altitude just as fast.

In a lead editorial earlier this week, the Sun points out that the Trump dollar is actually on track to be the weakest in all American history.

In the information theory of economics real money is time, and the best proxy for time is gold. Time is what remains scarce when everything else becomes abundant.

Amazingly, it still takes about the same amount of time to extract an additional ounce as it did a thousand years ago. We have vastly more capital and technology, but the gold is deeper and more diffuse to extract. Gold cancels technology and capital and remains as a measure of time.

Suffering from a Historic Commodity Deflation

Measured against gold, the dollar is down 31% so far during the three and a half years of the Trump Administration, to under 1,740th of an ounce. Only 12 points of the drop have followed the onset of COVID-19.

Another 8.5% down, and the dollar will sink below its all-time low in 2011 when it reached below 1900th of an ounce of gold. By contrast, the dollar rose 38% during Ronald Reagan’s first term and fueled his reelection. Trump should take notice.

It is Congress that has the Constitutional power to coin money and regulate its value, but Congress has defected to the Fed. Whether Trump likes it or not, he will be blamed for a wilting dollar.

An exemplary guide is John Mueller, the chief economist at Lew Lehrman’s Institute. In the same issue of the Sun, Mueller points out that the great French visionary Jacques Rueff, Lehrman’s mentor and Charles de Gaulle’s, emerged in the wake of the worst pandemic of recent centuries.

Without the help of today’s suicidal lockdowns, Anthony Fauci’s precautionary masks, and lock-brained governors across the country, the Spanish flu of 1918 killed some 50 million. Among them were 675,000 in the US, including many young people. Young people are almost entirely immune to COVID-19.

This year’s total mortality from all causes will not reach 50 million. If the media did not trumpet every new death associated in any way with the virus, no one would even notice a few line jumping fogeys in the global queues of life.

But the world will certainly notice the vast economic and social havoc inflicted by the lock-brained politicians.

Rueff’s Law, countervailing Keynes, shows that unemployment rises and falls with “net unit labor costs,” which he calculated as worker’s share of national income minus taxes and plus social benefits such as unemployment insurance.

Following Rueff’s law, Mueller points out that the Congressional enactment of additional unemployment benefits ensures a slow recovery, as workers will demand compensation comparable to the value of the benefits plus free time. Congress should end the supplemental unemployment incentives promptly in July.

More significantly, Mueller also proposes that the US take advantage of the soaring price of gold and plummeting price of other commodities to start paying off the trillions of foreign dollar reserves. By phasing in a new gold standard while commodities are in the basement, we could spur the US economy, revive agriculture and energy, and launch a new global boom.

Time-prices show that the collapse of inflation and the ascent of the value of money continues even in the face of the monetary hackers in charge of central banks.

Of course, the lock-brained politicians who support shutting down the national economy for a case of the flu could not adopt any so inspired a policy, even if Jacques Rueff returned from the grave to espouse it and Lew Lehrman were elected President or named Secretary of the Treasury.

Both on left and right, economists fail to understand that a gold standard would not reduce the money supply but expand it, preventing deflation as well as inflation. Today, we are suffering from an historic commodity deflation. The crash of 2000 was caused not by inflation, but by a massive appreciation of the dollar in a historic four-year deflation. In the midst of a massive technology upsurge as measured by time-prices, there were too few dollars rather than too many.

Moving Toward Blockchain-based Digital Currencies

As Nathan Lewis showed in his books, Gold: The Monetary Polaris and Gold: The Final Standard, there is no relationship between the amount of the world’s gold and the amount of money. If the price of gold is fixed, money can grow to any needed level in response to the commitments of entrepreneurs to profitable projects. During the Industrial Revolution, while the amount of the world’s gold merely rose merely 3.4 times, the US money supply rose 163-fold.

Instead, in the absence of a digital gold standard, investors around the world will continue the move toward blockchain-based digital currencies, ultimately rooted in time.

The first one was bitcoin, launched by Satoshi Nakomoto in 2009 in response to the financial crisis of 2008. Also calling for new currencies in early 2009 was the great Chinese central bank governor Zhou Xiaochaun, who appealed to the International Monetary Fund to launch a new “bancor” with a tie to gold.

Retiring in 2017 after nearly 20 years in office, Zhou appealed for three key reforms to assure China’s economic future: Ending capital controls, stabilizing the yuan, and embracing free trade and investment.

Now, Chinese have declared blockchain as a core national technology and are launching a new digital yuan with a link to commodities, which is a way for timorous economists to intimate a link to gold. The Chinese have led the world in accumulating gold in recent years, but the US still commands the largest reserves. The technology revolution of this era is the rise of blockchain that can mimic the stability and facticity of gold.

Enabled by the massive advances in store width technology — millionfold gains in bandwidth and digital storage — the blockchain is a way of addressing the two great hacking crises in the world economy: Some eight billion items of personal data lost to internet hackers and the debauch of global money under the regime of the hackers who dominate the world’s central banks.

The entrepreneurs who best fuse the ascent of information technology with the stability of gold will create a new technology gold standard for both the internet and the world economy.

It’s happening today and this prophecy is on the case.

George Gilder

Senior Fellow and Co-Founder of Discovery Institute
George Gilder is Chairman of Gilder Publishing LLC, located in Great Barrington, Massachusetts. A co-founder of Discovery Institute, Mr. Gilder is a Senior Fellow of the Center on Wealth & Poverty, and also directs Discovery's Technology and Democracy Project. His latest book, Life After Google: The Fall of Big Data and the Rise of the Blockchain Economy (2018), Gilder waves goodbye to today's Internet.  In a rocketing journey into the very near-future, he argues that Silicon Valley, long dominated by a few giants, faces a “great unbundling,” which will disperse computer power and commerce and transform the economy and the Internet.