Skip to comments.Triple Lutz Report--The Trade Deficit and Fiat Money-Perfect Together
Posted on 12/06/2011 10:37:39 AM PST by appeal2
The United States has run up a cumulative $7.5 trillion Trade Deficit. The last time the country ran a trade surplus was in 1976. Nixon closed the Gold Window in 1971. Do you believe it's just a coincidence that the rise of an un-backed Fiat Dollar and the rise of the Trade Deficit haapened so close in time? The Country has been in a pronounced economic decline since the 1970's and when the Gold Window was closed. Since then the money supply has increased many times and so has inflation.
While living standards have declined, so has domestic energy production. This has exacerbated the Trade Deficit and has cost consumers countless billions. The ability to print up currency and dump it on a willing world, in exchange for their production, has enabled the Government to present the illusion that things are alright. But look at the dying industrial cities in America. Detroit, once a paragon of industrial success, has fallen upon hard times. The average Detroit home is going for $6,000, only 25 percent of students graduate from high school and unemployment among men has reached nearly half of the work force.
Such trade imbalances were much less likely to occur under a Gold Standard. Countries were not likely to allow complete depletion of their gold reserves. Fiat currencies can keep being produced regardless how bad the imbalance becomes. Then it is up to the trading partners to decide whether or not to accept the currency. At some point enough will be enough and it will be game over.
Listen to the Report
What a crock! You can borrow money on a gold standard, just like you can borrow money on a fiat standard. And you can run up trade balances using either if you have stupid trade policies.
It's worth noting though that our import tariffs are at historic lows. Perhaps if we raised our import tariffs and became a little more self reliant and put our people back to work. We wouldn't have such huge trade deficits.
Nixon had to stop exchanging dollars for gold as President Johnson had inflated the economy by printing money to pay for his Vietnam War and The Great Society. Charles Degaulle had realized this and was draining the American gold reserve by converting Frances paper dollars into gold at the pre-inflated price. Had Nixon not taken us off the gold standard then Degaulle would have bankrupted the United States.
Once the US was off the gold standard every Congress and Administration just printed money to solve their problems and kick the can down the road. The road appears to have ended and the can has lodged in the woods where it cant be easily kicked further.
A fiat currency and a Central Bank (the Federal Reserve) allow a Government to “paper-over” their sins. Also, if we had a gold standard and no FED, the US Government could absolutely NOT run long-term budget deficits of $1 Trillion or more.
The FED is the cornerstone of progressive government. Get rid of it, and you solve 1000 other problems at the same time.
When you have a nation where 536 of our politically elite and esteemed leaders of our government (give or take some), who were bought off by the globalists to ensure that the USA lost the great economic war of affluence and self sufficiency, this is the outcome.
Would a gold standard have helped? Maybe. But when traitors are calling all the shots that inevitably caused our economy to be sent to the Asia, Communists and Mexico this is the outcome.
The USA was once funded by tariffs not income taxes. That drove industry to our shores because they wanted access to our markets. Then around 1913 the central bankster globalists clandestinely met at Jekyll Island, took control and illegally created an income tax and the rest is history.
As mentioned yesterday, this is false. In a gold-standard, the supply of money is limited. Yes, Gov'ts can borrow , but they will pay an immediate cost in terms of interest rates, and the effect on the whole economy. There is NO WAY in a true hard currency system the Gov't could run $1 Trillion deficits year after year, like we have now - with money printed by the FED.
Okay, time for Economics 100, because you obviously don’t understand what the FED does when it “prints” money.
John has $100 in gold. He can leave it under his mattress or he can put it in the bank where it is safer and he might earn a little interest
John’s Bank Account
100 Gold | 0 Debt
The bank loans the gold out to Fred.
Fred puts the money in his bank account.
Fred’s Bank Account
100 Gold | 100 Loan
Now we have 200 Gold!!! At least according to the bank accounts. That’s the same way it works with fiat money.
The Bank just printed 100 GOLD. Same as it does with dollars. When the Fed “Prints” money, what it really is doing is creating a loan. And you can absolutely do this with gold. Gold smiths loaning out the gold that had been entrusted to them for interest is how banking got started.
If you’re goal is to stop money creation, then you have to prohibit all loans. But that’s is a stupid goal. So is wanting a currency that maintains 100% value over 100 years. It’s not an educated goal.
And what happens then when people start to ask for real Gold for their gold-backed dollars??? Maybe you should review what happened before and after Nixon took the US off the gold standard.
Also, why do you want constant inflation? You like have the Central Bank and the Gov’t steal your money?
Prices remained the same from the early 1800’s to WWI - and there were no great inflations or great depressions. It was progressives who wanted inflation and printed money, so they could reduce their debts and allow gov’t to spend this printed money.
Same thing that always happens on the gold standard. A bank run causes the banks to fail and a severe depression follows.
Also, why do you want constant inflation? You like have the Central Bank and the Govt steal your money?
Because a slight amount of inflation is good for the economy. On the gold standard you have big swings of inflation and deflation, but mostly deflation. If you can increase your purchasing power by just holding money, then there is no reason to invest. That's why deflation is associated with depression. People hoard instead of investing.
Inflation forces investment. If you know you're going to hold dollars for many years, the smart thing to do is to invest so that you get a return. Otherwise the inflation will eat away at your purchasing power.
The primary goal of currency is NOT to be a long term store of wealth. The primary goal of currency is to facilitate business transactions. For that you need a stable dollar, not one that has big swings back and forth between inflation and deflation. Fiat money has been considerably better than the gold standard in this regard.
The year to year change in the dollar is only about half of the year to year change in the dollar when we were on the gold standard. The difference is that the Fed intentionally targets a slight amount of inflation, whereas on the gold standard we had swings of inflation and deflation, and we had deflationary depressions every 20 years in the 1800's.
Prices remained the same from the early 1800s to WWI - and there were no great inflations or great depressions.
What? You need to take some history!
Economic Depressions of the U.S.
You also had some major inflation often exceeding 10% in a year. During the Civil war you had back to back years of 20%+ inflation.
Regardless, your charts disprove your point. Except for a World War II financing, debt as a fraction of GDP actually declined (!!) until Nixon closed the "gold window" in 1971. Moreover, regarding price stability, see below
As you can see, prices are absolutely stable, and GDP higher, when the dollar is linked to precious metals.
If congress can finance excessive levels of debt for WWII while on the gold standard, they can finance excessive levels of debt for their pork projects.
It proves that the gold standard does nothing to stop congressional borrowing and overspending. Only electing fiscally responsible people to office will do that.
The gold standard didn't bring the debt back down after WWII, a fiscally responsible congress\presidents did.
"As you can see, prices are absolutely stable, and GDP higher, when the dollar is linked to precious metals."
What you can't really see on that graph is the year to year swings between inflation and deflation. The only reason the dollar appears to be more stable in the first half of the graph is that it's swinging back and forth between deflation and inflation, making it look like a straight line. But both the swings and the deflation are terrible for business.
What that graph does show is the cummulative effect of inflation if you choose to hide dollars in your mattress instead of investing them. Yes if your goal is to hoard dollar bills in your mattress for 50 years, then gold standard is for you. But for the rest of us, who intend to earn interest and invest, fiat money is far superior.
Did I misread this? Isn’t the article about the impact of a gold backed currency on the trade deficit, not about the budget deficit or national debt. While the trade deficit can impact national debt they are not one and the same.
Prior to the imposition of the Federal Reserve inflation only occurred during war time. It’s simple, while the government can certainly cheat under a gold standard, there’s a limit to how much they can inflate. During war time, ie 1940’s, there’s ample justification to inflate, even under a gold standard. So your chart proves nothing other than to show that governments can never be trusted, but especially during wars and so called emergencies.
Not true. Get your facts right. CPI 1800 till present
Inflation in 1803, 1806, 1808 9.1%, 1811, 1812, 1813, 1814, 1825, etc...
Besides you say that like inflation is worse than deflation. It's not. Deflation causes depressions! That's why the Fed targets a slight amount of inflation.
Not blather at all. And true, to some degree. And yet, Nixon could have dealt with the problem differently, using a “bank holiday” type of approach. That is, he could have allowed the gold window to be opened a few ten thousand of $’s a day per money holder.
That is to say, comme ca, that De Gaulle was doing the post WWII world a favor by example, and Europe the US an everyone else would not be in the straights we are now in, had they dealt HONESTLY with the problem.
Making money wholly fiat was dishonest.
Just like a homeowner who tolerates a slight amount of termites each year, eventually every beam and post is just a veneer, hollowed inside to the point of only tolerating the static load wile the termites are active in that section.
And then one day Granny visits and sits down on the couch, and the couch falls through into the basement, Granny breaks here hip and dies a few days later, the same day the house is officially condemned.
(Based on a true story.)
[A termite variant of catastrophe theory.]
That analogy would only be appropriate if your primary goal for currency is a long term store of value, instead of the appropriate goal, short term stability to facilitate business transactions.
Inflation is just another cost of doing business. Using a currency has costs. There's the cost of government minting, there's the cost of banking, there's the cost of safe storage, etc.
You can avoid inflation by bartering. It doesn't really avoid inflation but it changes the reference from the currency to the commodity you are bartering with. But bartering has huge costs. It ain't easy to pay your doctor bill with chickens.
What no economy or monetary authority can do, is have 0 inflation/deflation. It's not possible in a free market where prices move. Any given basket of goods is going to go up and down based on a myriad of supply and demand factors in the economy, along with population growth etc.
On the gold standard we didn't have 0 inflation. We had severe swings between deflation and inflation, much worse than on fiat money. The swings averaged over the long run closer to 0, but that's not what we want from a currency.
From a currency you want short term stability to facilitate business transactions. You'd also like a little inflation so that investment is stimulated.
You don't want deflation because it causes depressions. What you gain in currency from deflation is more than offset by what you lose in economic crises. And since 0 is practically impossible, you target a small amount of inflation. That's what the FED does and it does it very very well.
In the context of these times, where the highly corrosive effects of inflation and fiat currency (and the monetary authorities that run such currencies) are so obvious, your response is self-delusional.
Even Greenspan understood it back in 1966!
Depressions, the “bust” part of the natural boom-bust cycle, are like a bout of the flu. They are hard, but they quickly pass.
Monetary inflation is a infection like termites to wood, and like cancer to the body. Both analogies serve to show its problems, and the termite one shows how the damage can continue hidden, with few observed ill effects until the whole house is in immediate danger of collapse. Natural inflation (booms) self-correct, like the natural depressions (busts) do.
To work long-term fiat money requires men at a level of honor men simply do not have. Fiat money enables and serves as a growth medium for cronyism, corruption and in end stages, hyper concentration of paper wealth. Paper wealth is distinguished from tangible, real wealth, paper forms of wealth requires compliance to the terms set out by a judge, a master or a strong man to enforce when it is disputed. Corruption and cronyism ALWAYS cause disputes, and they are intrinsically irredeemable disputes.
For a time people go along as by force of habit and a sense of peacefulness with a system that has become corrupted. But the irresolved disputes build up; they are injustices.
Eventually rule by force of arms and violence is needed to enforce the corrupted contracts, and to protect the massively concentrated ill-gotten stores of wealth.
THAT IS FIAT MONEY.
As the Founders knew, and expressed in a few key clauses of the Constitution, fiat money is a ruination.
No it's your response that is "self-delusional". The FED is doing exactly what the FED should be doing.
By focusing on the Federal Reserve, you're ignoring the real problem, which is Congress's lack of Fiscal Discipline.
Both are problems! The FED is easier to solve. Shutter it, return to coinage of standard weight, and notes payable in same, as the Founder’s established in the Constitution.
Only a rare and temporary Congress will have the fiscal discipline pure fiat money requires. Reasonable men do not rely on such rarity for the regular operation of government. To do so is insane, immature, delusional.
Congress can borrow and spend beyond their means on a gold standard just like with fiat money. And a fiscally irresponsible congress can and will promise that your children will repay their debts in gold.
I've already shown a graph that Congress reached even higher levels of debt to GNP while on the gold standard than current levels of debt.
Sorry, DannyTN, simply not true.
The Talmud says: “Bad coins acquire good coins, but good coins do not acquire bad coins.”
Using the worst of all bad coins — fiat money — the corrupt eventually acquire all of “good coin”, that is hard assets.
If you want a long term store of value and don't want to invest in industry or earn interest through banking, then by buy gold with your dollars.
But if you want a currency that minimizes year to year fluctuations which is good for business, is mildly inflationary so that it stimulates investment, is not subject to foriegn influences, then stick with the dollar.
Gold is a pain in the ass to use. There's not enough gold to go around. It's scarity means that it's subject to manipulation by the likes of Soros. China is the major gold producer today, they would have more say over our monetary policy than we would. There is not an ounce of gold for every person alive today. I hope you like really really small coins. It's ridiculous to try to manage a modern economy on the gold standard. You might as well go back to barter than to use gold.
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