Way
back in 1995, when Mexico was in the throes of another financial crisis, I
figured out the problem of the existing world's monetary system, based on the paper
dollar as the fundamental currency of the world.
In my
ignorance, I did not know that a man named Triffin had already pointed out that
problem, which became known as "Triffin's Dilemma".
The
problem is really very simple:
If the dollar - such as it
is - is going to be the basis of the world's monetary system, and therefore
required by all Central Banks as Reserves, there is only one way that these CBs can obtain those
Reserves: their countries are forced to undersell all US producers, in order to be able to sell more to the US, than they buy from the US.
The difference between the
dollars they get from sales, is more, than
the dollars they spend to
buy from the US. That difference - known as the US Trade Deficit - flows to the
CBs of the world and swells their Reserves.
So
if Mr. Trump wants to cut down, or even ideally abolish the Trade Deficit, that
would mean that foreign CBs would have to find it much harder to obtain dollars
for their Reserves. Mr. Trump apparently does not want to have foreign CBs use
dollars as Reserves, by making it very difficult to obtain those dollars -
which they can only get if the US runs a Trade Deficit.
What
that great world monetary system based on the paper dollar has done to the US,
was quite unexpected: it consists in obtaining foreign goods by tendering paper
money in payment, something that is fundamentally fraudulent. And that fraud
has come back to haunt the US, quite unexpectedly.
The
unexpected result of Triffin's (or "Hugo's") Dilemma, has been the
de-industrialization of the US, as the world geared up to undersell all
US producers wherever they could do so, in order to obtain the indispensable US
Dollars.
Mr. Trump
is wildly alienating all the rest of the world, with the threat of Tariffs in
order to reduce the Trade Deficit. What he does not understand, is that the Trade
Deficit is built-in to the US economy, because the world´s CBs need Dollars for
their Reserves: that is the System.
There
is one way, and only one way, to do away with the Trade Deficit and renew the
productivity of the US: abandon the present International Monetary System
(derived from the original Bretton Woods Agreements of 1944) and return to the
gold standard.
There
are no "Trade Deficits" under the Gold Standard, because all
countries have to pay Cash Gold for their imports, and collect Cash Gold for
their exports. Result: Balanced Trade. No Trade Deficits.
A question
in the back of my mind: Is Mr. Trump's "madness" really
leading to the Gold Standard? Is that what he really wants? Because if he
continues to undermine the present US Dollar as the World's Reserve Currency,
by making it impossible for CBs to obtain Dollars through the US Trade
Deficit, that would appear to be the likely final outcome.
